1. Supply & Demand: Market Competition

2. Demand: the desire, ability, and willingness to buy a product

3. Demand Schedule iTunes Downloads PriceQuantity Demanded $5 $2.99.50.10

4. Law of Demand  The quantity demanded of a good or service varies inversely with its price.  P QD  P QD

5. Think of your favorite food…

6. Law of diminishing marginal utility

7. Change in quantity demanded v. change in demand

8. Change in quantity demanded

9. What causes a change in quantity demanded?  PRICE

10. Change in Demand  People/consumers are now willing to buy different amounts of a product at the same price.

11. What makes this happen?  Consumer Income  Consumer taste  Price of related goods  Substitute goods  Complementary goods  Expectations  Number of consumers

12. 1) Consumer Income  When your income increases you can afford to buy more goods at the same price.  When your income decreases you can afford to buy less at the same price.

13. 2) Consumer Tastes  Marketing  Popularity  Fashion trends  News reports  Introduction of new products  Changes in season

14. 3) Substitute Goods  A change in the price of a related product can cause a change in demand  Butter/Margarine example  Seinfeld Substitute Goods Seinfeld Substitute Goods netflix

15. 4) Complementary Goods  If the quantity demanded for one good increases, then the demand will increase for complementary goods (and vice versa)

16. 5) Change in expectations  Expectations in technological advancements  Expectation of shortages

17. 6) Number of Consumers  An increase or decrease in the number of consumers of a given good changes demand

20. Analyze the relationship b/w price and quantity demanded  Study the two graphs attached. What information can we gain from the graphs? What trends do you notice?  What do we know about the relationship between price and quantity demanded?  Do you notice any discrepancies between the Law of Demand and the information about US gas consumption and price? What are they?  What do you think might explain this inconsistency?

21. Elasticity  The extent to which a change in price causes a change in the quantity demanded.  In other words…if the price of a good increases, how much will the quantity demanded decrease?

22.  Elastic Demand  A change in price creates a generally larger change in quantity demanded  Inelastic Demand  A change in price does not create substantial change in quantity demanded

23. Elastic or Inelastic?

24. How did you decide?  Can the purchase be delayed?  Are there adequate substitutes available?  Does the purchase use a large portion of income?

25. The other half of the equation…Supply.

26. Supply: the amount of a product that would be offered for sale at all possible prices.  The Law of Supply  The principle that suppliers will normally offer more for sale at high prices and less at low prices  PQS  PQS

27. Change in quantity supplied vs. change in supply

28. Change in Quantity Supplied  A change in the amount offered for sale in response to a change in price

29. Change in Supply  A situation where suppliers offer different amounts of products for sale at all possible prices in the market

30. What makes this happen?  Cost of Inputs  Productivity  Technology  Taxes and Subsidies  Expectations  Government regulations  Number of sellers

31. Cost of Inputs  Labor, packaging, shipping, energy costs, etc…

33. Productivity  Unmotivated, untrained, unhappy employees decreases productivity and vice versa Google Productivity

34. Technology  Introduction of a new machine, chemical, or industrial process.

35. Taxes and Subsidies  Taxes increase cost of production  Subsidies decrease cost of production

38. Expectations  Expectations about the future price of a product can change supply…if sellers think that the price of their product will go up, they will withhold some of the supply

39. Government Regulations  Increased government regulations restrict supply  Relaxed regulations increase supply

41. Number of Sellers  As more businesses and firms enter the economy the number of sellers increases as does supply

42. Supply Elasticity  Measures the way in which quantity supplied responds to price  Do these goods have elastic or inelastic supply?