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Introduction-to-Supply-and-Demand-Power-Point.ppt
- 2. DEMAND The desire, ability, and willingness to buy a product or service
- 3. Do You Demand These? Desire? Ability? Willingness?
- 4. Demand Schedule A listing that shows the quantity demanded at all prices. Price Per CD # of CDs Demanded $1 300 $2 162 $3 94 $4 58 $5 37 $6 25 $10 18 $15 13 $20 10
- 5. Demand Schedule Example Price Per CD # of CDs Demanded $27 10 $24 13 $21 18 $18 25 $15 37 $12 58 $9 94 $6 162 $3 300 100 200 300 0 0 5 10 15 20 25 30
- 6. Law of Demand P= Price QD= Quantity Demanded P QD P QD Item on sale, price mark up, etc.
- 7. The Law of Demand Graph Quantity Demanded Price
- 8. Change in Quantity Demanded Quantity Demanded Price
- 9. Q: What causes a shift in Demand? A: Non-price determinants Price Quantity Demanded Decrease in demand Increase in demand
- 10. Non-Price Determinants of Demand 1) Buyer’s Income 2) Price of Substitutes 3) Market Size 4) Consumer Tastes 5) Consumer Expectations 6) Complement Goods
- 11. 1) Buyer’s Income Income Demand Income Demand Examples: - Minimum wage increases - Economic Recession - The Great Depression
- 12. 2) Price of Substitute Goods Goods or services that can be used instead of other goods or services, causing a change in demand.
- 13. 3) Market Size Market Size Demand Market Size Demand Examples: Immigration Detroit after collapse of auto industry
- 14. 4) Consumer Tastes The popularity of a good or service has a strong effect on the demand for it, and in the marketplace, popularity can change quickly.
- 15. 5) Consumer Expectations What you expect prices to do in the future can influence your buying habits today. Examples: HD TV’s PS3 Gasoline Homes Automobiles
- 16. 6) Complement Goods When the use of one product increases the use of another product.
- 17. Supply The desire, ability, and willingness to offer products for sale *Anyone who offers an economic product for sale is a supplier *When you work at your job, you are offering your services for sale. Your economic product is labor. You would probably supply more for a higher wage.
- 18. Law of Supply P= Price QS= Quantity Supplied P QS P QS Super bowl commercial
- 19. The Law of Supply Graph Quantity Supplied Price
- 20. Q: What causes a change in quantity supplied? A: Price Quantity Supplied Price
- 21. Q: What causes a shift in supply? A: Non Price Determinants of Supply Price Quantity Supplied Decrease in supply Increase in supply
- 22. Non-Price Determinants of Supply 1) Number of Products 2) Input Costs 3) Labor Productivity 4) Technology 5) Government Action 6) # of sellers 7) Producer Expectations
- 23. 1) Number of Products A successful new product or service always brings out competitors who initially raise overall supply.
- 24. 2) Input Costs Input costs, the collective price of resources that go into producing a good or service, affect supply directly Examples Minimum Wage increases Cost of cotton increases, supply of t-shirts decreases
- 25. 3) Labor Productivity Better trained or more-skilled workers are usually more productive. Increased productivity decreases costs and increases supply.
- 26. 4) Technology By applying scientific advances to the production process, producers have learned to generate their goods or services more efficiently.
- 27. 5) Government Action Government actions, such as taxes or subsidies, can have a positive or negative effect on production costs.
- 28. 6) # of Sellers # of sellers increases, supply increases # of sellers decreases, supply decreases Examples: McDonald’s Plans to Open 1,000 new stores in 2010 All Circuit City stores in America went out of business
- 29. 7) Producer Expectations The amount of a product that producers are willing and able to supply may be influenced by whether they believe prices will go up or down.
- 30. SUPPLY Quantity Supplied Price (The entire line -- ALL Prices & ALL Quantities)
- 32. Change in QUANTITY Supplied Quantity Supplied Price MOVEMENT
- 33. Change in SUPPLY Quantity Supplied Price SHIFT
- 34. Shift in the Supply Curve For an given rental price, quantity supplied is now lower than before.
- 35. Market Equilibrium Situation in which prices are relatively stable and the quantity of goods or services supplied is equal to the quantity demanded. QS = QD Equilibrium Price – the price that “clears the market.” No Shortage or Surplus.
- 36. Quantity Price 0 500 1000 1500 2000 0 1 2 3 4 5 6 7 8 9 10 Equilibrium Price Equilibrium Quantity Equilibrium Price
- 37. Surplus Situation in which the quantity supplied is greater than the quantity demanded at a given price. QS > QD P Note: If there is a surplus, prices generally fall
- 38. Quantity Price 0 500 1000 1500 2000 0 1 2 3 4 5 6 7 8 9 10 Surplus of 700 At $8 there is a surplus of 700
- 39. Shortage The situation in which the quantity demanded is greater than the quantity supplied. QD > QS P Note: If there is a shortage, prices generally rise
- 40. Quantity Price 0 500 1000 1500 2000 0 1 2 3 4 5 6 7 8 9 10 A price of $3 causes a shortage of 900 units. Shortage of 900
- 41. Equilibrium After a Demand Shift The shift in the demand curve moves the market equilibrium from point A to point B, resulting in a higher price and higher quantity.
- 42. Equilibrium After a Supply Shift The shift in the supply curve moves the market equilibrium from point A to point B, resulting in a higher price and lower quantity.
- 43. Demand Elasticity A term used to indicate the extent to which changes in price cause changes in quantity demanded.
- 44. Elastic Demand Occurs when a relatively small change in price causes a relatively large change in the quantity demanded.
- 45. Inelastic Demand Occurs when a change in price causes a relatively smaller change in the quantity demanded.
- 46. Estimating Elasticity of Demand Yes = Elastic No = Inelastic Can purchase be delayed? Are there adequate substitutes? Does purchase use a large portion of income? 2 or more yes’s = elastic 2 or more no’s = inelastic
- 48. Necessity The more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price, such as the case of insulin for those that need it.