1. Free Markets People have choice – they buy what they want Profit is the motivation for sellers If you didn’t make a profit, you wouldn’t want to waste your time providing the good or service Competition is the rivalry between sellers to gain a market advantage – to sell the most and make the highest profit

2. Supply and Demand The relationship between sellers and buyers is called Supply and Demand Supply – the quantity of goods or services that producers are willing to provide at various prices Demand – the amount of goods or services that a consumer is willing to buy at various prices

3. Supply and Demand The Law of Supply states that suppliers will supply more at high prices than at low prices There is a direct relationship between price and quantity of goods that producers will supply If you keep supply low, you can charge a higher price – iPhone 6 - $199 with a plan, $649 without

4. I Have Candy How much do you want it? – Each person will get money – Do I have to sell it to you? – Why would I give it to the lowest bidder? – What if I said you would lose points on a test if you didn’t throw away the wrapper? Incentives – What induces us to act Can be financial, moral

5. Price If there is an ample supply but no demand, what will happen to your price? – Amazon Fire Phone - $0.99

6. Price If producers cannot make a profit at the market price, they have to reduce their costs – Use cheaper materials Bendy iPhone Send production overseas – iPhone is assembled in Korea, otherwise it would be even more expensive

7. Supply Wrap-Up If supply increases while demand remains constant, what happens to price? What happens to price when supply is low? How do producers know how much supply is in the marketplace? If the price is high, what are suppliers likely to do?

8. The Law of Demand A change in the demand for a good will cause a change in the market price – More people want the iPhone 6 If supply remains the same, a surge in demand will cause the price to rise – You can charge customers more because it is scarce

9. The Law of Demand If demand remains the same, an increase in supply will cause price to fall – I have too many Fires – so I have a fire sale! ($0.99) If demand remains the same, a decrease in supply will cause prices to rise – Fewer iPhones are available – People will pay more to get one on Amazon, eBay, Craig’s List

10. Demand Wrap-Up List some events that affect demand How do manufacturers know when demand will change? How does a change in demand affect price? How does a change in demand affect the quantity that manufacturers are willing to supply? What if there is a natural disaster? – How does that affect demand for certain products?

11. Activity – Supply/Demand? Price? What if? – College has 80% male/20% female ratio – The best SAT tutor in the world has limited time to meet with students – Paris Hilton pays $13,000 for a puppy

12. Activity – Supply/Demand/Price? What if? – Tesla makes a $35,000 electric car that is even cooler than the current model? Supply/Demand/Price for gasoline Supply/Demand/Price for charging stations Supply/Demand/Price for think of other inputs and outputs related to the car – Hint: Gas Stations, car parts suppliers, our environment – Come up with significant ramifications