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Supply and Demand
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The Laws of Supply and Demand
When people's actions are based on self-interest, people respond to incentives:
When the cost of an activity is raised people do less of the activity;
When the benefit of an activity is reduced people do less of the activity.
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The Law of Demand
As the price gets higher, people want less of a particular product
Quantity
Price$40
$30
$20
$10
10 20 30 40 50 60 70
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Demand Curves Can Change Fashions, technology, new
information, etc. can all shift the demand curve.
Quantity
Price$40
$30
$20
$10
10 20 30 40 50 60 70
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The Supply Curve As the price gets higher, suppliers are
willing to supply more of a product
Price
Quantity
$40
$30
$20
$10
10 20 30 40 50 60 70
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Equilibrium
This represents what the price is at the moment in the marketplace.
Price
Quantity
$40
$30
$20
$10 10 20 30 40 50 60 70
SupplyDemand
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Examples of Supply and Demand
Housing Gasoline Orange juice after a freeze in
Florida Import quotas (affecting supply)
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What if...?
...peanut butter was discovered to be a cure for
cancer?
...a cheap, environmentally-friendly source of
automobile fuel was discovered?
... eating large quantities of Brussel sprouts caused
rapid weight loss?
...a safe, no-fail patented weight-loss pill was
developed by a drug company?
