A market allows buyers and sellers to exchange goods and services. Demand refers to how much of a good or service consumers are willing and able to purchase at different prices at a given time. According to the law of demand, as price increases, quantity demanded decreases, and vice versa. Factors like income, weather, prices of substitutes and complements can cause demand to increase or decrease.
Introduction to Demand
We buy products for their utility- the pleasure, usefulness, or satisfaction they give us.
What is your utility for the following products? (Measure your utility by the maximum amount you would be willing to pay for this product)Do we have the same utility for these goods?Introduction to Demand
One reason the demand curve slopes downward is due to diminish marginal utility
The principle of diminishing marginal utility says that our additional satisfaction tends to go down as we consume more and more units.
To make a buying decision, we consider whether the satisfaction we expect to gain is worth the money we must give up.
Changes in Demand
Demand Curves can also shift in response to the following factors:
Buyers (# of): changes in the number of consumers
Income: changes in consumers' income
Tastes: changes in preference or popularity of product/ service
Expectations: changes in what consumers expect to happen in the future
Related goods: compliments and substitutes.
BITER: factors that shift the demand curve
Changes in Demand
Prices of related goods affect on demand
Substitute goods a substitute is a product that can be used in the place of another.
The price of the substitute good and demand for the other good are directly related
For example, Coke Price
Pepsi Demand
Complementary goods a compliment is a good that goes well with another good.
When goods are complements, there is an inverse relationship between the price of one and the demand for the other
For example, Peanut Butter Price
Jam Demand
Introduction to Supply
Supply refers to the various quantities of a good or service that producers are willing to sell at all possible market prices.
Supply can refer to the output of one producer or to the total output of all producers in the market (market supply).Introduction to Supply
• A supply schedule can be shown as points on a graph.
• The graph lists prices on the vertical axis and quantities supplied on the horizontal axis.
• Each point on the graph shows how many units of the product or service a producer (or group of producers) would willing sell at a particular price.
• The supply curve is the line that connects these points.
Introduction to Supply
As the price for a good rises, the quantity supplied rises and the quantity demanded falls. As the price falls, the quantity supplied falls and the quantity demanded rises.
The law of supply holds that producers will normally offer more for sale at higher prices and less at lower prices.Introduction to Supply
• The reason the supply curve slopes upward is due to costs and profit.
• Producers purchase resources and use them to produce output.
• Producers will incur costs as they bid resources away from their alternative uses.Introduction to Supply
• Businesses provide goods and services hoping to make a profit.
Profit is the money a business has left over after it covers its costs.
Businesses try to sell at prices high enough to cover it
Introduction to Demand
We buy products for their utility- the pleasure, usefulness, or satisfaction they give us.
What is your utility for the following products? (Measure your utility by the maximum amount you would be willing to pay for this product)Do we have the same utility for these goods?Introduction to Demand
One reason the demand curve slopes downward is due to diminish marginal utility
The principle of diminishing marginal utility says that our additional satisfaction tends to go down as we consume more and more units.
To make a buying decision, we consider whether the satisfaction we expect to gain is worth the money we must give up.
Changes in Demand
Demand Curves can also shift in response to the following factors:
Buyers (# of): changes in the number of consumers
Income: changes in consumers' income
Tastes: changes in preference or popularity of product/ service
Expectations: changes in what consumers expect to happen in the future
Related goods: compliments and substitutes.
BITER: factors that shift the demand curve
Changes in Demand
Prices of related goods affect on demand
Substitute goods a substitute is a product that can be used in the place of another.
The price of the substitute good and demand for the other good are directly related
For example, Coke Price
Pepsi Demand
Complementary goods a compliment is a good that goes well with another good.
When goods are complements, there is an inverse relationship between the price of one and the demand for the other
For example, Peanut Butter Price
Jam Demand
Introduction to Supply
Supply refers to the various quantities of a good or service that producers are willing to sell at all possible market prices.
Supply can refer to the output of one producer or to the total output of all producers in the market (market supply).Introduction to Supply
• A supply schedule can be shown as points on a graph.
• The graph lists prices on the vertical axis and quantities supplied on the horizontal axis.
• Each point on the graph shows how many units of the product or service a producer (or group of producers) would willing sell at a particular price.
• The supply curve is the line that connects these points.
Introduction to Supply
As the price for a good rises, the quantity supplied rises and the quantity demanded falls. As the price falls, the quantity supplied falls and the quantity demanded rises.
The law of supply holds that producers will normally offer more for sale at higher prices and less at lower prices.Introduction to Supply
• The reason the supply curve slopes upward is due to costs and profit.
• Producers purchase resources and use them to produce output.
• Producers will incur costs as they bid resources away from their alternative uses.Introduction to Supply
• Businesses provide goods and services hoping to make a profit.
Profit is the money a business has left over after it covers its costs.
Businesses try to sell at prices high enough to cover it
2. Discuss What is a market? In a market who is the consumer? How does the price of a good affect the consumer?
3. Market An arrangement that allows buyers and sellers to exchange things Markets exist because no one is self sufficient and no one produces all we require to satisfy all our needs and wants.
4. Demand Description The quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time
6. Discuss How does demand and “want” or “desire” differ? You may want or desire a new car or a closet full of clothes, but you demand these things only when you are willing and able to buy them.
7. Quantity Demand The quantities of a particular good or service consumers are willing and able to buy at set prices at a particular time
9. Demand Schedule How much people are going to buy at the various prices. Ex. The price of pizza Price Quantity $.50 $1.00 $1.50 $2.00 $2.50
10. Law of Demand As price goes up quantity goes down As price goes down quantity goes up People buy less of something at higher prices than they do at lower prices.
11. ELASTIC DEMAND: demand that is very sensitive to a change in price goods that one might stop buying or cut back on as price increased (SUVs, Luxury items)**on a graph this demand curve will be FLAT
12. INELASTIC DEMAND demand that is not very sensitive to a change in price goods that you would buy at any price; there are few if any substitutes for these goods. (milk, gas, prescription drugs) **on a graph this demand curve would be very steep.
13. Illustration of Decrease and Increase in Demand Decrease in Price Increase in Price Price Price D2 D1 D2 D1 Quantity Quantity The less you buy the more you will move to the left!
14. The Demand Curve The Demand Curve slopes downward to the right because the consumer is willing and able to buy more gasoline at lower prices than at higher prices.
15. Scenario #1 Harris Teeter is advertising a sale on hot dog buns. What is the impact on the demand for hot dogs?
16. Scenario #2 Playstation 3, the newest video game console, hits stores. What is the impact on the demand for Xbox 360?
17. Scenario #3 The weatherman forecasts rain for the weekend in Charlotte. What is the impact on the demand for umbrellas?
18. Scenario #4 The N.C. General Assembly increases minimum wage to $7/hour. What is the impact on the demand for clothing?
19. Scenario #5 A snowy blizzard blows through Charlotte. What is the impact on the demand for snow boots?
20. Scenario #6 The price of MP3 players decreases dramatically due to new technology. What is the impact on the demand for portable CD players?