- Demand refers to how much of a good or service consumers are willing and able to purchase at different prices. The quantity demanded typically decreases as price increases, as shown by the downward sloping demand curve. - Supply refers to how much of a good or service producers are willing to offer for sale at different prices. The quantity supplied typically increases as price increases, as shown by the upward sloping supply curve. - The interaction of supply and demand determines the market equilibrium price and quantity through the forces of supply and demand.

1. Demand
Chapter Four

2. microeconomics
● Microeconomics:
● study of small units, such as individuals and
firms.
● Decisions made by:
● People
● Families
● Clubs/organizations
● Small businesses
*these decisions help shape bigger decisions, like prices

3. what is demand?
● To Demand: Being willing and able to buy a
good or service
● calculating the level of Demand involves two
variables:
● Quantity of a product (how many will people buy?)
● Price of a product (how much will people pay?)
How many of you would want to buy one peanut butter and jelly sandwich for the
price of $2.00?
How many of you would want to buy one peanut butter and jelly sandwich for the
price of $0.50?

4. What creates demand?
Advertising, fashion trends, and new
product introductions serve to create
consumer demand

5. The law of demand
●For most products and services:
● Price increase = less quantity demanded
●Price decrease = more quantity demanded

6. The individual demand schedule
The individual demand schedule shows a
consumer’s quantity demanded of a good at all
prices that might prevail in the market.
Peanut butter and jelly sandwich sales
Price per sandwich
Quantity of sandwiches
demanded by Riker
$0.50 10
$1.00 9
$1.50 8
$2.00 7
$2.50 6
$3.00 5
$3.50 4
$4.00 3

7. The individual Demand Curve
The Individual demand curve is a graphical representation of the
individual demand schedule.
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0 2 4 6 8 10 12
$Pricepersandwich$
Quantity of sandwiches demanded by Riker
Peanut butter and jelly sandwich sales

8. The market demand curve
● We know that individual demand is the Q
demanded at each P for an individual
● But what good is an individual curve to a company?
● The market demand curve shows the demand
of ALL consumers in a particular market
Riker’s
demand
P Q
$4 3
$1 9
Sally’s
demand
P Q
$4 5
$1 20
Mike’s
demand
P Q
$4 0
$1 5
Market demand
P Q
$10 8
$1 34

9. What can change the amount
of quantity demanded?
● A change in Price!!
● More $$ = less quantity demanded
● Less $$ = more quantity demanded
● Two effects of price change that cause demand to inc/dec are:
● The income effect – when a price changes, our disposable income goes
up or down.
● The substitution effect – a price change that makes other products look
more/less costly
*these are changes that appear along the demand curve

10. Change in Quantity demanded
movement along the curve

11. What can shift the demand
curve?
● Change in demand (shifts the curve).
● Any change other than price
● TRIBE
● Taste – Consumer’s tastes change due to advertising,
trends, rumors, new products
● Related goods’ prices
● Substitutes – products that can be used interchangeably
● Complements – products used together

12. Change in demand cont.
● Income – more income = more demand
● Buyers - Number of consumers in the market
● More consumers = more demand
● Expectations – changing buying habits based on
what is expected to happen to prices in the future.
*these are changes that appear in a totally new
demand curve, in a different position on the graph

13. Riker invites friends for
lunch (change in # of buyers)
Price Quantity Demanded
by riker
Riker + friends
demand
$4.50 0 0
$4.00 3 5
$3.50 4 6
$3.00 5 7
$2.50 6 8
$2.00 7 9
$1.50 8 10
$1.00 9 11
$0.50 10 12

14. Riker and Friends’ demand
for PBJ’s
and friends

15. Demand Elasticity:
●consumers react to change in price by
changing the quantity demanded
●However: the size of the reaction will vary
depending on the product in question.
●Elastic demand: a change in price causes
a relatively larger change in quantity
demanded.
●Inelastic - change in price causes a
relatively smaller change in the quantity
demanded.

16. Elasticity
A fast food
meal
toilet paper
Which of the above goods would be affected most by a price change?

17. Elasticity
Elastic Inelastic
Which of the above goods would be affected most by a price change?

18. Elasticity
● So how can we determine elasticity?
● Is the purchase necessary?
● Yes:
● No:
● Are equally good substitutes available?
● Yes
● no

19. Elasticity
Fresh
veggies
cup of
coffee
gasoline from
a particular
station
gasoline in
general
Is the purchase
necessary?
Y: inelastic
N: elastic
Are there
Substitutes?
Y: elastic
N: inelastic
Type of elasticity
N N N Y
Y Y Y N
E E E IE

20. Supply
Chapter Five

21. What is Supply?
● The willingness and ability of a supplier to
produce a product.
The law of supply:
● Suppliers will offer more of a product for
sale at higher prices than at lower prices.

22. Supply schedule (individual)
●Chart showing how much a producer is
willing to supply at all possible prices.
Price per PBJ Quantity of PBJ’S
4.50 11
4.00 10
3.50 9
3.00 8
2.50 7
2.00 6
1.50 5
1.00 4
.50 3

23. The supply schedule (individual)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
0 2 4 6 8 10 12
PriceperPBJ
Quantity of PBJ’s supplied by Riker’s sandwich shop
Market for PBJ’s

24. The Market Supply schedule
● The market supply curve shows the
supply offered by all companies in a
market.
● To find market supply, add together all
companies’ supply.

25. Market supply schedule
Quantity of PBJ’s Supplied by
All Firms in the Market
How many PBJ’s are supplied if the price is $2.50 per
sandwich?
Price Firm X Firm Y Firm Z
$4.50 50 500 1,000
$4.00 40 400 900
$3.50 30 300 800
$3.00 20 200 700
$2.50 10 100 600
$2.00 5 50 500

26. What can cause a change in
quantity supplied?
● a change in price leads to a change in
quantity supplied
● a change in quantity supplied is shown
by movement along a supply curve.

27. The supply schedule (individual)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
0 2 4 6 8 10 12
PriceperPBJ
Quantity of PBJ’s supplied by Riker’s sandwich shop
Market for PBJ’s

28. What can move the supply
curve?
Anything that makes it more/less expensive
to produce the good or service
ROTTEN
● Resources– cost and availability (land, labor, capital)
● Other goods’ prices – substitutes/complements
● Taxes, subsidies, government regulation
● Technology and productivity
● Expectations of the producer
● Number of firms in the industry

29. The government taxes
Peanut butter

30. Elasticity of Supply
● A measure of how the supply of a product
responds to a price change.
● Elastic supply – a big change in supply
● Inelastic supply – a small change in supply

31. Elasticity of Supply
● So what determines elasticity of supply?
● The only large determinant is production, so
we ask this question:
Can a company adjust quickly to a new price?
If YES, then the product is elastic.
If NO, then the product is inelastic.

32. Elasticity of supply
●Which one has inelastic supply?

33. Elasticity of Supply
● Hershey Kiss
● Doesn’t take a lot of capital to make
● Not a highly skilled process
● Made by machines
● Quick process
ELASTIC

34. Elasticity of Supply
● Nuclear power
● Highly skilled process
● Lots of capital needed
● Technologically difficult
● Extensively regulated
INELASTIC