Supply and Demand

Supply and DemandWhat is supply?

Supply and Demand

▸Supply- quantity of a product or service that sellers are willing and able to provide the market at a given price

Supply and DemandImportance of understanding supply

▸For better understanding of changing prices

▸Supply influences price

Supply and DemandCauses for changes in supply

▸Changes in production costs▸Prices of related goods

▸Number of sellers in the market▸Future expectations of price▸Past performances of price

Supply and DemandLaw of Supply

▸Relationship between product supply and price

Supply and Demand

Supply is not just a single product at a single price!

Supply and DemandWhat is demand?

Supply and Demand

▸Demand- quantity of a product or service that buyers are able and willing to purchase from the market at a single

price

Supply and DemandFactors influencing demand

▸Changes in personal income▸Prices of related goods

▸Number of buyers in the market▸Future expectations of price▸Past performances of price

Supply and DemandLaw of Demand

▸Low prices = More buyers▸High Prices = Fewer buyers

Supply and DemandEstablishing Price

Through supply and demand price can be established.

Supply and DemandEquilibrium price

Definition: quantity supplied equals quantity demanded

Supply and Demand

Equilibrium price=market price

Supply and Demand

▸Complementary▸Supplementary

▸Elastic vs. Inelastic

Supply and DemandComplementary - Definition

▸If an increase in the price of one product decreases the consumption of

another

Supply and DemandComplementary

▸Products that are eaten and/or promoted together

▹Examples: ham and eggs, lettuce and salad dressing

Supply and DemandWhat is Supplementary?

Supply and DemandSupplementary - Definition

▸A product that does not compete with another product

Supply and DemandSupplementary - Definition

▸Products that do not compete with other products

▹Examples: sheep and wheat production

Supply and DemandWhat is Elastic and Inelastic?

Supply and DemandElastic - Definition

▸Demand of a product whose use is not directed by necessity or habit, therefore

has several substitutes

Supply and DemandElastic

▸Causes consumers to be more cautious of price changes

▹Examples: T-bone steaks

Supply and DemandSo what is Inelastic?

Supply and DemandInelastic - Definition

▸Products that have a necessity and very few substitutes

Supply and DemandInelastic

▸Consumers must have these items and are insensitive to price changes

▹Examples: bread, milk

...and we’re done!