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Warm Up # 4`
1. How does supply and demand impact you personally?
2. What are the FOUR factors of production?
SUPPLY & DEMAND
Chapter 21
Supply & Demand: The Dance
Market
Anytime buyers and sellers come together, a market is created.
Buyers are careful about how much they are willing to pay for a product, often shopping around for the best price.
Suppliers respond in the same way by moving to a price where there are no leftovers or shortages.
Demand
Demand is the desire, willingness & ability to buy goods & services. Demand only exists if
people want the product & are willing to pay the price for it.
Law of Demand
As price falls, Quantity
Demanded rises
Demand Schedule
Demand schedule is a table of the quantity demanded of a good at different price levels
Given the price level, it is easy to determine the expected quantity demanded.
Helps sellers to determine the price
Can be done as an individual demand schedule,
based on one person market demand, the demand for
all of the consumers for that good/service.
Demand Curve
A demand curve is a graph that shows the demand schedule.
Supply
Supply- the various quantities of a good or services that producers are willing to sell at all possible market prices. Can refer to a single producer or all of the
producers to get the supply for the entire market.
Suppliers offer different quantities of a good depending on the price buyers are willing to pay, while buyers demand different quantities of a good depending on the price the seller ask.
The Law of Supply
As the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa.
Consumers want to pay as little as they can. They will buy more as the price drops. Sellers, on the other hand, want to be able to charge as much as they can. They will be willing to make more and sell more as the price goes up. This way they can maximize profits.
Supply Schedule
After determining the demand for cookies, the supply schedule is needed before the market price can be found.
Supply Schedule- is a table that shows the quantities of a good (or service) that potential sellers would offer to sell at varying prices
shows how the law of demand and law of supply works
Supply Cont.
Demand Schedule + Supply Schedule = Market Price
In order to find the market price or equilibrium price for a product you can use a demand & supply graph.
Where the two lines intersect is the market price/ equilibrium price can be found.
Changes in Demand
Market demand for goods can increase or decrease.
Sometimes people are more willing to pay more for a particular product or good.
Then another curve could be graphed and another intersect for supply and demand would occur finding the new equilibrium price
How the graph shifts according to a change in quantity demanded.
Reasons for a Change/ Shift in Demand
Changes in population Changes in income Changes in taste/ popularity Changes in expectations
When people are preparing for the future whether it is a new product that replaces an old one, or preparing for a hurricane and stocking up on supplies
Change in price or quality of related products
Reasons for a Change/ Shift in Demand
Change in price or quality of related products Two types of related products
Substitutes- consumers can use one instead of the other An increase in the price of a substitute product will increase the
quantity demanded of the good Ex) If you are the producer of Keebler Chocolate-Chip Cookies
and Pepperidge Farm Chocolate-Chip Cookies raises their prices, there is an increase in the quantity demanded of Keebler’s Chocolate-Chip Cookies.
Complements- a product that is used in conjunction or together with another product. The quantity demanded of one will affect the other A DVD player is a complement of a DVD. If DVD players prices
fall then the quantity demanded for DVD player will rise, just as the quantity demanded for DVD’s will rise
Example of substitute product shifting demand
Rise in price of Coca-Cola, decreases the quantity demanded.
Because Pepsi is a substitute product the quantity demanded for Pepsi rises
Warm Up #5
Explain separation of powers and the function of each part it has in both the Federal government and State/Local government. What is the purpose of the separation of powers?
You have a quiz (mostly multiple choice) today on everything we have covered in Econ leading up to Supply and Demand.
Due Today: The LORAX questions. Have them out on your desk so I can check them while you are completing your warm up.
Demand Elasticity
Demand Elasticity a measure of the responsiveness of quantity demanded to a price change, may cause a change in price to have a small or large impact on quantity demanded.
Inelastic goods such as gasoline are still purchased in approximately the same quantity even when prices rise.
Elastic goods usually follow the law of demand and will see a drop in quantity demanded when prices rise. restaurant meals, movie tickets, and luxury items
Demand Elasticity Cont.
FYI If a good has a large number of
substitutes, the more elastic it is. The fewer the substitutes, the greater the inelasticity.
If the good is highly desired with few substitutes it may be more inelastic.
If the good represents a small proportion of a person's budget, price changes do not greatly affect the amount purchased.
Inelastic v. Elastic
Elastic or Inelastic?
Salt Inelastic, Salt is inelastic because there
are no good substitutes, it is a necessity to most people, and it represents a small proportion of most people's budget.]
Elastic or Inelastic?
Toothpicks Inelastic because they cost very little
and represent a small percentage of a typical grocery budget and have few substitutes
Elastic or Inelastic?
Chevrolet cars/ trucks Elastic because we don't have to buy
that brand of car - we have lots of substitutes
Elastic or Inelastic?
Physician Services/ Doctors Visits Inelastic, because this is a necessity
Why does supply change?
Profit is the biggest incentive, which motivates everything else
Why does supply change?
Cost of Resources/ Availability of Resource Productivity Technology Government Policies- can limit the amount of a good
produced. A rise in minimum wage could reduce the supply b/c production cost would go up
Taxes Subsidies- gov. payment to an individual, business, or other
group for certain actions. Ex) tobacco farmers paid not to grow tobacco
Expectations- if businesses don’t think there is a high demand for their product, then they will produce less
Number of Suppliers- the more suppliers, the more products
Supply Elasticity
Supply elasticity is a measure of how the quantity of a good changes in relation to a change in price.
ELASTIC Supply - If the price of a good goes up and the supplier is able to dramatically increase output/ supply of that good. Or decrease if the price goes way down. Good typically fairly easy to produce, candy around
holidays INELASTIC - very difficult for a producer to change
the amount of a supply based on the price level. Ex) drilling for oil
What Determines the Elasticity of Supply?
Availability of raw materials Length and complexity of production Time to respond Inventories Capacity to expand production
Back to setting the price
What happens if the price is too high or too low for a good/ service?
Surplus- if the price is too high and then there is more quantity supplied than quantity demanded & there are overages.
Shortage- if the price is too low than there is less quantity supplied than quantity demanded.
Example… in bucket prices
Why is the price different?
What are they trying to avoid?
Price Controls- Gov. regulation of prices
Price Ceiling – gov. sets maximum price that a good can be sold for. Usually for essential
expenses such as rent Designed to protect
consumers from rapid price increases and help the poor
Can cause shortages of goods
Gov. Price Controls
Price Floors- sets a minimum price for a good. Keeps prices from getting
too low Minimum wage is an
example of a price floor in order for it to be
effective it must be set above the equilibrium price. Can cause a surplus of
goods/ services