Unit 2
Supply and Demand
Demand
 What is demand?
   ›The desire, ability, and willingness of
    consumers to buy a product.

 Demand is a microe...
Law of Demand
 The quantity demanded (Q-d)for an
  economic product varies inversely
  with its price.

   P    Q-d

 ...
The Demand Schedule
 A listing that shows the Q-d at all prices
  that might prevail in the market at a
  given time.    ...
The Demand Curve
 A graphic depiction of the points
  corresponding to a demand schedule.

 Illustrates the quantity tha...
Change in Quantity-Demanded
       v. Change in Demand

           • Illustrated by a movement along the
Change in    curr...
A Change in Quantity-Demanded
Movement along the demand curve
  Shows a change in the quantity of the
   product purchas...
Change in Demand
Changes in any of the ‘non price’ determinants of demand will cause the
    entire demand curve to shift ...
Diminishing Marginal Utility
• Marginal Utility: extra usefulness or
  satisfaction a person gets from acquiring
  one mor...
Recap: Food Simulation
• You got the most satisfaction
  from the first food purchase.

• You get less satisfaction
  from...
Recap: Food Simulation
• Because of diminishing satisfaction, we
  would not be willing to pay as much for
  the 2nd, 3rd,...
DEFINE ‘ELASTIC’
What images come to mind
when you hear this term?
Elasticity of Demand
Demand Elasticity:
  Extent to which changes in price cause
  changes in the quantity-demand.



Have...
Elastic versus Inelastic
       DEMAND


Elastic Demand                 Inelastic Demand
• A given change in price      • ...
Estimating the
    Elasticity of Demand
1. Can the purchase be delayed?
  2.Are adequate substitutes
          available?
...
Estimating the
                                 Elasticity of Demand
                                        Services of  ...
Supply
 What is supply?
  •The ability and willingness of
   producers to offer products for sale.
    ›The producers (su...
Law of Supply
 The quantity supplied(Q-s)for an
  economic product varies directly with
  its price.

   P    Q-s

   ...
The Supply Schedule
 A listing that shows the Q-s at all prices
  that might prevail in the market at a
  given time.    ...
The Supply Curve
 A graphic depiction of the points
  corresponding to a supply schedule.

 Illustrates the quantity tha...
Change in Quantity-Supplied
        v. Change in Supply

 Change • Illustrated by a movement along the
            current...
A Change in Quantity-Supplied
Movement along the supply curve
  Shows a change in the quantity of the
   product supplie...
Change in Supply
1.   Cost of Inputs
2.   Productivity           Remember:
                       Suppliers want to sell
3...
Headliners:
 Supply and Demand
• Pretend you are a writer for the local newspaper.
• Your task is to create a ‘catchy’ hea...
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Supply And Demand

  1. 1. Unit 2 Supply and Demand
  2. 2. Demand  What is demand? ›The desire, ability, and willingness of consumers to buy a product.  Demand is a microeconomic concept ›Microeconomics  part of the economy that deals with behavior and decision making by small units [individuals, firms]
  3. 3. Law of Demand  The quantity demanded (Q-d)for an economic product varies inversely with its price.  P  Q-d  P  Q-d
  4. 4. The Demand Schedule  A listing that shows the Q-d at all prices that might prevail in the market at a given time. Price Number of CDs per CD Demanded $ 30 0 $ 25 0 $ 20 1 $15 3 $10 5 $5 8
  5. 5. The Demand Curve  A graphic depiction of the points corresponding to a demand schedule.  Illustrates the quantity that consumers will demand at each and every price.  Downward sloping Price Demand Curve Quantity Demanded
  6. 6. Change in Quantity-Demanded v. Change in Demand • Illustrated by a movement along the Change in current demand curve quantity- • The whole demand curve does not shift demanded • Response to a change in the price of the product • Illustrated by a shift of the entire Change in demand curve left or right demand • Response to a change in one of the four “non-price” determinants of demand
  7. 7. A Change in Quantity-Demanded Movement along the demand curve Shows a change in the quantity of the product purchased in response to a change in price. Price Example: If the price of an I-Phone decreases, the Quantity quantity-demanded of Demanded I-phones would increase
  8. 8. Change in Demand Changes in any of the ‘non price’ determinants of demand will cause the entire demand curve to shift right (increase) or left (decrease). Ex- If demand increases, the entire demand curve will shift right. This means that at each and every price, more will be demanded (Q-d). 1. Consumer Income 2. Consumer Tastes 3. Price of Substitute Goods 4. Price of Complement Goods
  9. 9. Diminishing Marginal Utility • Marginal Utility: extra usefulness or satisfaction a person gets from acquiring one more unit of a product. • Law of Diminishing Marginal Utility States that the extra satisfaction we get from using additional quantities of a product begin to diminish.
  10. 10. Recap: Food Simulation • You got the most satisfaction from the first food purchase. • You get less satisfaction from the second, and even less from the next but you continue to eat… • When you reach the point where the marginal utility does not justify eating (i.e., you get sick), you stop.
  11. 11. Recap: Food Simulation • Because of diminishing satisfaction, we would not be willing to pay as much for the 2nd, 3rd, 4th, and so on, as we did the first.
  12. 12. DEFINE ‘ELASTIC’ What images come to mind when you hear this term?
  13. 13. Elasticity of Demand Demand Elasticity: Extent to which changes in price cause changes in the quantity-demand. Have you ever bought a product that you needed and the cost was not important? - What was it? - Why didn’t the cost matter to you?
  14. 14. Elastic versus Inelastic DEMAND Elastic Demand Inelastic Demand • A given change in price • A given change in price causes a relatively larger causes a relatively smaller change in quantity- change in the quantity- demanded demanded • Example – Luxury Food • Example – Milk
  15. 15. Estimating the Elasticity of Demand 1. Can the purchase be delayed? 2.Are adequate substitutes available? 3. Does the purchase use a large portion of income? Yes to 2+ = Elastic No to 2+ = Inelastic
  16. 16. Estimating the Elasticity of Demand Services of Gasoline Determining Fresh Gasoline in Elasticity Table Salt Medical Milk from Tomatoes General Doctors SUNOCO Can the purchase be delayed? Are there adequate substitutes? Does the purchase require a large portion of income? Elastic? Inelastic?
  17. 17. Supply  What is supply? •The ability and willingness of producers to offer products for sale. ›The producers (suppliers) decide how much to offer for sale at various prices. ›This decision depends on the cost of producing goods/services.
  18. 18. Law of Supply  The quantity supplied(Q-s)for an economic product varies directly with its price.  P  Q-s  P  Q-s
  19. 19. The Supply Schedule  A listing that shows the Q-s at all prices that might prevail in the market at a given time. Price Number of CDs per CD Supplied $ 30 8 $ 25 7 $ 20 6 $ 15 4 $10 2 $5 0
  20. 20. The Supply Curve  A graphic depiction of the points corresponding to a supply schedule.  Illustrates the quantity that suppliers will supply at each and every price.  Upward sloping Price Supply Curve Quantity Supplied
  21. 21. Change in Quantity-Supplied v. Change in Supply Change • Illustrated by a movement along the current supply curve in • The whole supply curve does not shift quantity- • Response to a change in the price of supplied the product • Illustrated by a shift of the entire Change supply curve left or right • Response to a change in one of the in supply eight “non-price” determinants of supply
  22. 22. A Change in Quantity-Supplied Movement along the supply curve Shows a change in the quantity of the product supplied in response to a change in price. Price Example: If the price of an I-phone increases, the Quantity quantity-supplied of Supplied I-phones would increase
  23. 23. Change in Supply 1. Cost of Inputs 2. Productivity Remember: Suppliers want to sell 3. Technology more at a higher price 4. Taxes 5. Subsidies 6. Future Expectations 7. Government Regulations 8. Number of Sellers
  24. 24. Headliners: Supply and Demand • Pretend you are a writer for the local newspaper. • Your task is to create a ‘catchy’ headline and write a brief news article detailing a scenario that would cause a change in supply or demand. Be sure to describe which determinant of supply or demand your article is discussing. • Include drawings and a S&D graph to illustrate how the change in supply or demand would impact local consumers. Examples of “catchy” headlines from recent news… • “J. Crew benefits as Mrs. Obama wears the Brand” • “Demand increasing for locally grown thanksgiving fixings” • “Tickets! Tickets! Who’s Got Tickets?” • “Consumer demand for small cars is here to stay”
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