Name:______________________________________Date:_____________________Period:_________

Unit 2 SUPPLY AND DEMAND: HOW MARKETS WORK

• A ___________________ is a group of buyers and sellers of a particular good or service.

• Buyers determine ___________________.

• Seller’s determine___________________.

• Quantity demanded: the amount of a good that buyers are _____________________________to purchase.

• Law of Demand• The quantity demanded of a good__________ when the price of the good ___________.

Ben’s Demand Curve

• Change in Quantity Demanded

• Movement ____________ the demand curve.

• Caused by a ______________________________________________ of the product.

Change in Demand• Any change that alters the quantity demanded ______________________________.• A shift in the demand curve, either to the__________ or ___________.

Demand Shifters:

T-

I-

R-

E-

S-

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Name:______________________________________Date:_____________________Period:_________

Tastes & Preferences of Consumers• As people’s tastes ____________ in favor of a good, or an effective advertising campaign has

been waged, demand _________________ (shifts to the right).• As people’s tastes change ________________ a good, or a good loses popularity, demand

decreases (________ to the left).

Income of Consumers• As income_____________, consumer demand for goods and services _______________ (shifts

to the right).• As income_______________, consumer demand for goods and services ______________ (shifts

to the left).

Related Goods: SubstitutesSubstitute goods can be ______________________in place of one another.

• If two goods are __________________, when the price of Good A increases, demand for Good B increases (shifts to the __________).

• If ________goods are SUBSTITUTES, when the price of Good A _________________, demand for Good B decreases (shifts to the left).

Related Goods: ComplementsComplementary goods are used ________each other.

• If two goods are _______________________, when the price of Good A increases, demand for Good B decreases (shifts to the__________).

• If two goods are COMPLEMENTS, when the __________ of Good A decreases, demand for Good B increases (___________ to the right).

Substitute OR Complementary?• Cars and Tires-• Corn and Beans-• DVD Players and DVD’s-• Natural Gas and Electricity-

• Cereal and Milk-• Toast and Jam-• Sweatshirts and Sweaters-

Expectations of Future Price Changes• If ________________ expect the price of a good to _________in the future, immediate demand

increases (shifts to the right). • If consumers expect the price of a good to _________________ in the future, immediate

demand decreases (shifts to the __________).

Size of Population/Market• As the ______________ of consumers in a given market increases, ______________increases

(shifts to the right).• As the number of ____________________ in a given market decreases, demand decreases

(shifts to the left).

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Name:______________________________________Date:_____________________Period:_________

Elasticity of Demand

Measurement of consumers’ _____________________________ to price.

ELASTIC:Buyers are __________________________ to price changes.

INELASTIC:Buyers are _______ responsive to ______________changes.

Determinants of Demand Elasticity:• _______________________of substitutes• Price relative to___________________• Necessities ______ Luxuries• Time _______________ to adjust to a____________ change

Elastic or Inelastic?• Sugar-• New furniture-• New car-

• Gasoline-• Food-• Encyclopedia-

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Name:______________________________________Date:_____________________Period:_________

• 2% Milk-• Sailboat-• Socks-• Aspirin-

• Diet Coke-• Gold Jewelry-• Insulin-

Quantity supplied is the amount of a _____________________________________ are willing and able to sell.

Law of SupplyThe quantity supplied of a good________ when the price of the good_________.

Jerry’s Supply Curve

• Change in Quantity Supplied

• ________________________along the supply curve.

• Caused by a _________________________________________________ of the product.

Changes in Supply Any change that alters the quantity supplied _______________________. A _____________ in the ______________ curve, either to the left or right.

Supply Shifters:

T-

I-

G-

E-

R-

S-

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Name:______________________________________Date:_____________________Period:_________

Technological Advancements As technology advances, ____________________becomes more efficient and supply increases

(shifts to the right).International Events/Disasters

When international ___________ (such as wars & revolutions) or natural disasters occur, supply decreases (shifts to the __________).

Government Intervention(Taxes, Fees, Regulations, Subsidies)

When a ______, ________, or regulation is imposed on the production of a good or service, ________________ decreases (shifts to the left).

When a _______________ is granted for producers of a good or service, supply increases (shifts to the right).

Expectations of Future Price Changes If producers expect the price of a good to rise in the_____________, immediate supply

decreases (shifts to the left). If ________________ expect the price of a good to ___________________ in the future,

immediate supply increases (shifts to the right).

Resource Costs As the _____________________________________ (land, labor, and capital) become more

expensive for the producer to purchase, supply decreases (shifts to the left). As the factors of production (land, labor, and capital) become ________ expensive for the

producer to purchase, supply increases (shifts to the right).

Number of Sellers in the Market When additional firms (______________________) enter a market, supply of the product

increases (shifts to the right). When firms (businesses) _________ a market (go out of business or for some other reason

cease production),_____________ of the product decreases (shifts to the left).

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Name:______________________________________Date:_____________________Period:_________

Elasticity of SupplyMeasurement of

producers’ ______________________ to price.

ELASTIC:Producers are ___________________ to price changes.

INELASTIC:Producers are________ responsive to price changes.

Determinants of Supply Elasticity: Availability of _____________ ___________________ of inputs Storage ____________________ __________ needed to adjust to a ____________ change

Elastic or Inelastic? Bananas- Yogurt- Antiques- Medical Care-

Putting it all together: EQUILIBRIUM

Equilibrium

_________=_________

Law of Supply and Demand:

The price of any good adjusts to bring the ___________________________________and the _____________________________________ for that good into balance.

If Demand Increases… P Q

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Name:______________________________________Date:_____________________Period:_________

If Demand Decreases… P Q

If Supply Increases… P Q

If Supply Decreases… P Q

Four Steps to Analyzing Changes in Equilibrium

Does the event shift the supply (__________) or demand curve (________)?

Will the curve shift right ( ) or left ( )?

Draw & label the new curve on your graph

Locate the new equilibrium

(_________________________)

Airline Tickets Activity

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$ QD QS

200 24 1

300 16 10

400 10 16

500 4 22

600 0 25

Name:______________________________________Date:_____________________Period:_________

Nation’s largest spaghetti producer cuts pasta prices

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Name:______________________________________Date:_____________________Period:_________

Subzero temperatures destroy much of Florida’s citrus crop

Farmer invents new picking machine – Harvests apples in half the time

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Name:______________________________________Date:_____________________Period:_________

Colorado ski resorts announce 50% increase in lift ticket prices

Price Control

PRICE CEILING:(Creates a Shortage)

• A ________________ price set by the government that consumers are required to pay for a good or service.

• Prevents prices from getting too _______, enabling consumers to______ essential goods or services they wouldn’t be able to ____________ at the equilibrium price.

• Example: ___________________

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Name:______________________________________Date:_____________________Period:_________

PRICE FLOOR:(Creates a Surplus)

• A ________________ price set by the government that consumers are required to pay for a good or service.

• ____________ price up, ensuring that producers _______________ a benefit for providing a good or service

• Example: ___________________________

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