What is Demand?

Quantities of a particular good or service that people are willing and able to buy at different possible prices.

The Law of Demand

Consumers buy more of a good when its price decreases and less of a good when its price increases.

The Demand Curve

Factors of Demand

1. Changes in Income (the income effect)1. Examples?

Factors of Demand

2. Prices or availability of substitutes (The substitution effect)

A substitute is a good/service that can be used in place of another.

Factors of Demand

Prices or availability of complementary goods. Complimentary goods are things that are

often sold or used together.

Factors of Demand

Changes in the number of buyers.

Factors of Demand

Changes in preference, tastes, and technology.

Welcome Econ!

Intro Question – Create a demand schedule for candy in this

class.

Cost Quantity Demand

Free Infinite (or until bloated)

5 Jumping Jacks

10 Jumping Jacks

10 Pushups

20 Pushups

25 Second Dance Routine

Supply Schedule Per Day

Sale Price Quantity Supplied

Free Limited by Availability

$0.50 30

$1.00 60

$1.50 90

$2.00 120

$5.00 300

Now, let’s assume Mr. Norton’s starts a candy sales business and business is booming:

-What trends do you see above?

What is supply?

Supply: The amount of a product that is offered for sale at all possible prices in a market.

The Law of Supply

The Tendency of suppliers to offer more of a good/service at a higher price and less of that good/service at lower prices.

The Supply Curve

So…

Factors of Supply

Costs of inputs (factors of production)

Factors of Supply

Changes in productivity.

Factors of Supply

Change of the number of sellers in a market.

More sellers in a market = increased supply

Less sellers in a market = decreased supply

The Best Price!

The equilibrium price is the best price where supply and demand intersect. This is the point where suppliers and

consumers are in perfect harmony.

Exit Question -

Will having candy significantly improve your day? Why/why not?

Price Controls

In an unregulated market system with open entry and exit, market forces establish equilibrium prices and quantities.

While equilibrium conditions may be efficient, not everyone will be satisfied with the outcomes. Consumers Producers 3 Economic Questions – Can’t please

everyone

Price Controls

Are usually enacted when policymakers believe the market price is unfair to buyers or sellers.

Result in government-created price ceilings or price floors.

Price Ceilings and Price Floors

Price Ceiling A legally established maximum price at

which a good can be sold.

Price Floor A legally established minimum price at

which a good can be sold.

Price Ceilings

There are 2 possible outcomes when dealing with price ceilings.

The price ceiling is not binding if set above the equilibrium price.

The price ceiling is binding if set below the equilibrium price, leading to a shortage.

Non-Binding Price Ceiling

Binding Price Ceiling

Initially…

Then…

Distribution Methods

Scarcity leads to consumers bidding up the price until the demand and supply reach an equilibrium.

Price Ceilings

What are price ceilings?

What if there are price ceilings on a product? (perhaps gas?)

What can that company do to fight the shortage, without raising prices, so they aren’t faced with losses?

Price Ceilings! Price ceiling can cause a shortage in

supply.• A ceiling forces a

company to produce less of a certain product, thus causing a shortage.

• With a low supply, but an extremely high demand, the company must make tough decisions about distribution.

Solution:

Limit the hours of when gas will be sold, cut costs on employees and storefront. Sell the good in a shorter period of time.

Black Market! Sell gas at a higher price to those who are

willing to pay for it. (let the equilibrium set the price)

No gov’t regulation in an illegal market. In a shortage situation, some people will be

left without gas and others will have a surplus.

Black Market

If some people have access to the gas, they will buy as much as they can and then sell at a higher price in the black market.

In the black market, there is no gov’t regulation; thus, the price bidding returns, reestablishing an equilibrium in price, supply, and demand. This will alleviate the shortage.

What are the opportunity costs of operating in a black market?