1. Supply and Demand Econ Unit 2

2. Ceteris paribus The most important thing to remember for this next area of study. “All things being equal.” Don’t assume! Just use the facts.

3. The Market Economy Free-enterprise system –Questions of What?, How?, & Who? –Answered by the prices in the market –“price-directed market economy”

4. The Function of Prices 2 roles of prices 1) they ration scarce resources –What is the price of rare items??? –The higher the price, the less people will want to buy—the rationing effect. 2) they motivate production –What is the goal of business? –Higher prices attract more producers

5. Demand The focus is on the CONSUMERS. Define: –The number of items people will buy at various prices at given times. –Key words: number of items + various prices Quantity demanded (Q d ) Price (p)

6. How are Q d & p related p($).50.75 1.00 1.25 1.50 1.75 2.00 Q d (#) 300 265 235 175 125 80 50

7. The Law of Demand QdQd p Buyers want more of a product at lower prices

8. Demand Curve D

9. I D

10. Change in quantity demanded due to change in price I II D

11. Demand curve shifts to the right D

12. Demand curve shifts to the left D

13. Shifts in the Demand Curve T astes I ncome –Normal goods if y, D –Inferior goods if y, D R elated goods –Substitute goods if p of sub, D –Complementary goods if p of comp, D E xpectations of future prices # of consumers

14. Supply The focus is on the PRODUCERS. Define: –The number of items offered for sale at various prices at given times. –Key words: number of items + various prices Quantity supplied (Q s ) Price (p)

15. How are Q s & p related p($).50.75 1.00 1.25 1.50 1.75 2.00 Q s (#) 50 80 125 175 235 265 300

16. The Law of Supply QsQs p Sellers offer more of a product at higher prices

17. The Supply Curve Supply of Ice Cream Price per cone Quantity of ice cream cones.50.75 1.00 1.25 1.50 1.75 2.00

18. The Supply Curve Supply of Ice Cream Price per cone Quantity of ice cream cones.50.75 1.00 1.25 1.50 1.75 2.00

19. The Supply Curve Supply of Ice Cream Price per cone Quantity of ice cream cones.50.75 1.00 1.25 1.50 1.75 2.00

20. Shifts in the Supply Curve T echnology R esource Prices (inputs) O ther goods G overnment E xpectations of price N umber of sellers