Laws of Demand

Goal 8

Discuss

What is a market? In a market who is the

consumer? How does the price of a

good affect the consumer?

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.

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

Demand Illustration p.1 sec. 1

Price

Quantity

As price goes up, quantity demanded goes down

D1

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.

Quantity Demand

The quantities of a particular good or service consumers are willing and able to buy at set prices at a particular time

Quantity Demand Illustration

D2

Price

Quantity

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

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.

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

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.

Illustration of Decrease and Increase in Demand Decrease in Price Increase in Price

Price

Quantity

D1 D2

Quantity

Price

D1D2

The less you buy the more you will move to the left!

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.

Scenario #1

Harris Teeter is advertising a sale on hot dog buns. What is the impact on the demand for hot dogs?

Scenario #2

Playstation 3, the newest video game console, hits stores. What is the impact on the demand for Xbox 360?

Scenario #3

The weatherman forecasts rain for the weekend in Charlotte. What is the impact on the demand for umbrellas?

Scenario #4

The N.C. General Assembly increases minimum wage to $7/hour. What is the impact on the demand for clothing?

Scenario #5

A snowy blizzard blows through Charlotte. What is the impact on the demand for snow boots?

Scenario #6

The price of MP3 players decreases dramatically due to new technology. What is the impact on the demand for portable CD players?

Scenario #7

Summertime is approaching. What is the impact on the demand for shorts?

Scenario #8

The price of hamburgers increases at Food Lion. What is the impact on the demand for French fries?

Changes in Demand

Reasons Demand can change

People’s Income Weather Complementary Goods Substitute Goods

What is a Complementary Good?

Complementary Good: Two goods that are usually consumed together (Hot Dogs & buns)

What is a Substitute Good?

Substitute Good: An acceptable replacement for a good (Playstation & Xbox)

People’s Income Increases

Effect on Demand

Demand Increases› (shift right)

P

Q

D1 D2

Bad Weather (for product)

Effect on Demand

Demand Decreases› (shift left)

P

Q

D1D2

Price of Complementary Good Decreases (ex: peanut butter & jelly)

Effect on Demand

Demand Increases› (shift right)

P

Q

D1 D2

Peanut Butter

Price of Substitute Good Decreases (ex: Pepsi & Coca-Cola)

Effect on Demand

Demand Decreases› (shift left)

P

Q

D1D2

Pepsi

Complementary vs. SubstituteCan YOU tell the difference????

Substitute

Complementary

Substitute

Complementary

Substitute

Substitute

Complementary

Elasticity of Demand

How much the quantity demanded will change if the price rises or falls.

Supply

Discuss

Now you are the producer Think about the business you are

creating Things are now going to reverse

Supply

Description› The quantity of goods a producer is willing

and able to sell at various prices at a particular time.

P

Q

S1

Quantity Supplied

› The quantity of goods a producer is willing and able to sell at a set price at a particular time.

P

Q

S1

Supply Schedule

A list of quantities supplied by a provider at certain prices

Price Quantity

$.50

$1.00

$1.50

$2.00

$2.50

1

2

3

4

5

Law of Supply

As price goes up, quantity goes up As price goes down, quantity goes

down

More items will be offered for sale at a higher price than at a lower price

Illustrate an Increase in Supply

Price

Quantity

S1

S2

Illustrate a Decrease in Supply

S1S2

Price

Quantity

Supply Curve

The Supply Curve slopes upward and to the right because the producer is willing and able to sell more products at higher prices than at lower prices.

Change in Supply

Reasons for change in Supply

Cost of Inputs

Number of Suppliers

Weather

Costs of Inputs Decrease

Effect on Supply Supply Increases

› (shift right)› Spending less to

run the business

Examples› Land› Labor› Capital

P

Q

S1 S2

Number of Suppliers Increases

Effect on Supply Supply Increases

› (shift right)

Example: Basketballs› Dicks Sporting Goods› Sports Authority› Footlocker

P

Q

S1 S2

Weather is bad for product

Effect on Supply Supply Decreases

› (shift left)

Example› A hurricane during

the orange growing season

P

Q

S1S2

SO… can you apply this knowledge?

1) Together lets decide if the following scenarios are a change in…› Input costs› Number of suppliers› Weather

2) Then decide if it will› Increase supply› Decrease Supply

Situation #1

Dick’s Sporting Goods goes out of business. What is the impact on basketballs in Charlotte?

-number of suppliers changes-Supply Decreases

Situation #2

A hurricane destroys the orange groves in Florida. What is the impact on the supply of Orange Juice?

-weather changes-Supply Decreases

Situation #3

The price of gas decreases. What is the impact of trucking companies?

-cost of inputs change-Supply Increase

Situation #4

Nike moves their factory from the U.S. to China where workers are paid less. What is the impact on the supply of Nike’s shoes?

-change in input costs-Supply Increases

Supply and Demand together

Equilibrium: the point at which quantity demanded and quantity supplied are equal

At a point of equilibrium….

the price and quantity are balanced

the market for a good/service is stable

Disequilibrium: any price or quantity not at equilibrium

Excess Demand: when quantity demanded is more than quantity supplied

aka SHORTAGE!!!!

shortage

Excess Supply: when quantity supplied is more than quantity demanded

aka SURPLUS!!!!

surplus

A shift in the demand curve or the supply curve will result in a new equilibrium price.

Government Intervention in a Market Economy

Price Ceiling: a maximum price that can be legally charged for a good or service › (example: rent control)

 Price Floor: a minimum price for a good or service› (example: minimum wage)

Inflation and Deflation

 Inflation: a general increase in prices (over the years, prices rise and fall, but in the American economy, they have mostly risen)

 Deflation: A substantial drop in the prices