Today’s Objectives – Day 10

• Review test grades and questions• Begin Chapter 5 – Supply and Demand• Supply and Demand activities

• You will…– Understand what demand and supply are– How to chart them and understand charts– What affects each of them and how

&

Understanding Demand Principles

• Demand is - the amount of a good or service that consumers are willing and able to buy at all prices in a given period

• In order to be part of the demand of a product, two things must be true– Must be willing to purchase the

product– Must be able to afford the product

• Law of Demand – as prices increase, the quantity demanded decreases.

Demand and Price Interactions

• Demand can be influenced by price– Affects the willingness to purchase a product at different

prices• Using this gives us a Demand Curve– Shows how much people will/would buy at specific prices

What Causes Changes in Demand?

• Demand can be affected by many causes• Can affect personal and market demand

• Personal demand affects just one person• Market Demand is the demand of the whole

What Causes Changes in Demand?

• Things that can affect demand are…• Known as demand shifters

– Changes in people’s personal income– Changes in preferences of products– Changes in prices of products

• Can be affected by complimentary products or substitute products– Complimentary – product used w another

good– Substitute – different product that does the

same job

– Changes in the number of consumers in market

– Changes in expectations of the buyers

Graphing Demand Curve

• Take the information below to make a demand curve on a graph.

Price of Soda

# Bought by Joe

# Bought by Joe

# Bought by Joe

Total Purchased

$0.25 15 17 16

$0.50 11 15 10

$0.75 8 13 8

$1.00 5 9 7

$1.25 2 5 6

$1.50 1 3 2

Market Demand Curve

30 25 20 15

1.50

1.25

1.00

.75

.50

.25

10 5 35 40 45 50

Price of Soda

# Bought by Joe

# Bought by Joe

# Bought by Joe

Total Bought

$0.25 15 17 16 48

$0.50 11 15 10 36

$0.75 8 13 8 29

$1.00 5 9 7 21

$1.25 2 5 6 13

$1.50 1 3 2 6

Graphing the Changes in Demand

• Changes in Demand – happen when quantities change at ALL prices– Demand can increase or decrease – Always caused by outside factors• Decrease in demand shifts demand curve LEFT• Increase in demand shifts demand curve RIGHT

• When curve moves it is referred to as a demand shift– Price does NOT affect this, other factors do

30 25 20 15

1.50

1.25

1.00

.75

.50

.25

10 5 35 40 45 50

Price of Soda

# Bought by Joe

# Bought by Joe

# Bought by Joe

New Customer

Total Bought

$0.25 15 17 16 15 48 63

$0.50 11 15 10 11 36 47

$0.75 8 13 8 8 29 37

$1.00 5 9 7 5 21 26

$1.25 2 5 6 4 13 17

$1.50 1 3 2 2 6 8

Change in Consumers

New consumer increases demand

30 25 20 15

1.50

1.25

1.00

.75

.50

.25

10 5 35 40 45 50

Price of Soda

# Bought by Joe

# Bought by Joe

# Bought by Joe

Total Bought

$0.25 23 17 16 48 56

$0.50 19 15 10 36 44

$0.75 15 13 8 29 36

$1.00 9 9 7 21 25

$1.25 6 5 6 13 17

$1.50 3 3 2 6 8

Change in Consumers

New income for Joe #1 increases demand

Other Affects to the Demand Curve• People find Costco more appealing than Giant…

– What is the affect of the demand curve for products at• Giant?• Costco?

– What demand shifter created this?• Starbucks raises its prices due to a poor coffee bean season this

year…– What is the affect of the demand curve for products at

• Giant?• Costco?

– What demand shifter created this?• You decide to start drinking Caribou Coffee instead of Starbucks due

to the price rise…– What is the affect of the demand curve for products at

• Giant?• Costco?

– What demand shifter created this?

Exit Ticket – Demand Worksheet

• Use the information from your notes to graph the following information and show the correct shifts.

• This should be turned in at the end of the block (if time allows) – if no time allows it is HOMEWORK!!

What is Supply?

• Supply – amount of all producers willing to sell at a specific price during a specific time

• Law of Supply - Sellers want to sell at higher prices, and will sell less at lower prices.

• While buyers want more at a lower price, sellers do NOT want to sell MORE at a lower price.

Supply Schedule and Supply Curve

• Just like demand, we use a supply curve to show what people are willing to sell– Supply curve – shows amount at specific prices

• Market Supply – sum of all suppliers at a price

Chart shows what Jasmine is willing to make/supply at different price levels

Graph this Market SupplyAdd up all 3 shops and create a graph based on

the final numbers

Graph should take the sum of all 3 taco places and

place them at the specific prices they want to sell at

What Causes Supply to Change?

• Supply shifters change the supply curve– Multiple reasons for changes in

supply– Very similar to changes in

demand• Shifts caused by many things

• decrease in supply shifts the curve left

• increase in supply increases supply to the right

What are the Supply Shifters

• Changes in the cost of inputs– when factors of production price

increases/decreases, supply curves will shift

• Changes in the number of suppliers– the more people there are the higher the

supply numbers and visa versa• Changes in profit opportunities– If money can be made with other

products, companies may change

What are the Supply Shifters• Changes in technology - can increase

supply by increasing productivity• Changes in producer expectations– If market price is low, producers may

limit the supply to get a higher price• Happens with US farmers. Govt pays

them NOT to produce goods; keeps prices higher

• Changes in government policy– Can affect in two different ways

• Subsidies – cash payments to help producers

• Excise taxes – taxes put on goods

When We Mix Supply & Demand

• Equilibrium – point where quantity supplied meets the quantity demanded– No wasted product and no

additional desire• Equilibrium Price – price

in which equilibrium is achieved– Also known as “Market

Clearing Price”

Elasticity of Supply and Demand

• Elasticity – how much stretch the QUANTITY demanded or supplied has when price changes– degree of elasticity tell economists how

responsive consumers are to changes in price

• Inelastic – consumer response is slight or not at all– usually this way with necessity products

• Elastic – consumer response to price change is large; would buy something else if price rose

Elasticity of Supply and Demand

• Demand Elasticity – – How the QTY demanded changes with

price– Elastic goods show a large change in

quantity– Inelastic goods show little charge

• Supply Elasticity – – How the QTY of supplied goods

changes with price– Elastic goods can be produced quickly– Inelastic goods take more time

Graphing Demand Elasticity

• Graphs can also show the elasticity of goods– Steep slopes show

inelasticity– Shallow slopes show

elasticity• Found by graphing two

points– Graph the initial price and

quantity and the NEW price and quantity

Factors that Affect Demand Elasticity

• Availability of substitutes– more substitute products means

more elasticity• Price vs. Income– increases in price may/may not

affect you because of your income• Necessity v. Luxury – necessities usually considered

inelastic• Time– it takes time for adjustments that

can change elasticity rates

Graphing Supply Elasticity

• Graphs can also show the elasticity of goods– Steep slopes show inelasticity– Shallow slopes show elasticity

• Found by graphing two points– Graph the initial price and quantity and the NEW price and quantity

Factors that Affect Supply Elasticity

• Availability of inputs – Inability to get goods can slow

production• Mobility of inputs

– how easily products can be moved to where they are needed for production

• Storage capacity– ability to store goods for production

• Time– additional time allows supply chain to

have time to get to producers