Demand/Supply

1. Demand/Supply Economics Mr. Biddle

2. Microeconomics • The area of economics that deals with behavior and decision making in small units • Looks at individuals and businesses • Explains how prices are determined and how individual economic decisions are made You look at the individual tree not the forest

3. Introduction to Demand • Demand - The desire, ability, and willingness to buy a product • It is not enough to desire a product • I can want to buy a Dodge Challenger, but I’m not in the market to purchase one • Desire + Ability + Willingness = Demand

4. Introduction to Demand • Imagine we are going to open up a shop that sells DVD’s • The first thing we need to do is find out the demand for our product so we can set a price

5. Introduction to Demand • There are many ways to find the demand: • Survey • Look at past DVD sales • Visit similar shops to acquire info

6. Introduction to Demand • Once we have our data gathered we can create a table known as a Demand Schedule • This is a listing that shows the various quantities demanded of a particular product at various prices in the market • This only shows the demand for one consumer • Consumer A said he would • purchase the following amounts of DVD’s at the following prices: • 0 at $30 • 0 at $25 • 1 at $20 • 3 at $15 • 5 at $10 • 8 at $5

7. Price Quantity Demanded $30 0 $25 0 $20 1 $15 3 $10 5 $5 8 Introduction to Demand Demand Schedule • A demand schedule shows the amount that a consumer is willing and able to buy at each price • It also shows that the consumer is willing to buy more units as the price gets lower * *

8. Introduction to Demand • Demand Curve – a graph showing the quantity demanded at each price in the market • You transfer your information from the demand schedule to a graph by plotting the points and then connecting them • Both the schedule and curve show the same info, one is a table the other is a graph $30 $25 $20 $15 $10 $5 1 2 3 4 5 6 7 8 9 10

9. Introduction to Demand The Law of Demand – The quantity demanded of a good or service varies inversely with its price Basically When price goes up, demand goes down or Vise Versa

10. Market Demand Schedule/Curve • The market demand schedule/curve shows the quantities demanded by everyone who is interested in purchasing the product in the market • You must add up every consumers demand to get your market demand

11. Market Demand Schedule

12. Market Demand Curve $30 $25 $20 $15 $10 $5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

13. Supply • Supply- the amount of a product that would be offered for sale at all possible prices that could prevail in the market • How much a dealer is willing to sell at each price • A workers work is his/her supply. The higher he/she is paid the more supply he/she will be willing to give

14. Law of Supply • The principle that suppliers will normally offer more for sale at high prices and less at lower prices. (Suppliers decision) • You want to sell more at higher prices, b/c you make more money per unit

15. Price Quantity Supplied $30 8 $25 7 $20 6 $15 4 $10 2 $5 1 Supply Schedule Supply Schedule • A listing of various quantities of a particular product supplied at all possible prices in the market • Supply goes up with the price • Opposite of Demand

16. Supply Curve • A graph showing the various quantities supplied at each and every price that might prevail in the market • Slopes from the left to the right showing a positive slope Remember this is only one firm

17. Market Supply Schedule/Curve • The supply schedule/curve that shows the quantities offered at various prices by all firms that offer the product for sale in a given market

18. Price Firm A Firm B Market $30 8 5 13 $25 7 4 11 $20 6 3 9 $15 4 2 6 $10 2 1 3 $5 1 0 1 MarketSupply Schedule

19. MarketSupply Curve

20. Example

21. Quantity Supplied • The amount that producers bring to the market at any given time

22. A Change in Quantity Supplied • The change in amount offered for sale in response to a change in price • When the price changes so does the supply

24. Money Statement • The bottom line is that sellers (producers) want to sell more of their products when the price is high and less when the price is low, b/c they want to get as much money for their product as possible

25. Change in Supply • A situation where suppliers offer different amounts of products for sale at possible prices in the market • Changes in supply, whether they’re increases or decreases can occur for several reasons.

26. Cost of Inputs (Money you have in a product) • The cost to produce a good has an impact on how much sellers are willing to supply • A decrease in the cost of inputs, such as labor or packaging, lead to the seller increasing supply or vise-versa

27. Productivity (How much you make in a certain time period) • When workers work more efficiently they produce more supply in shorter time • It is up to management to motivate and keep the workers happy to be more efficient, b/c if they aren’t happy they won’t get as much work done

34. Technology • New Technology can help increase supply • New Machines, chemicals, or industrial processes can increase supply by lowering the cost of production, or by increasing productivity • Ex- The assembly line increased the production of automobiles

36. Technology • Technology can have a negative effect on supply • Ex-If a machine breaks down than the supply would decrease • However, Technology normally has a positive effect

37. Taxes and Subsidies Taxes • Firms view taxes as a cost • If a producers inventory (products) are taxed it is viewed as a rise in the cost of the product (Supply would decrease) • If taxes were lowered or cut than supply would increase

38. Taxes and Subsidies • Subsidy- a government payment to an individual, business, or other type of group to encourage or protect a certain type of economic activity • Subsidies lower the cost of production • They encourage old producers to stay in the market and new ones to enter. • Farmers receive subsidies to stay in business

40. Expectations • Future expectations of the price of their products can effect how much a supplier is willing to supply • If the producer thinks the price of his product will go up in the future he will with hold some of his supply • They may predict a fall in price and try to produce and sell as much as possible ASAP

41. GovernmentRegulations • When the government sets new rules or laws it can effect supply • Ex- If automobiles have to have certain safety equipment, like airbags it would increase the cost of production and decrease supply

42. Number of Sellers • The more people there are selling products the bigger the supply is in the market (Vise-Versa) • There are people entering and leaving the market everyday. • The Internet is helping to add people to the market

43. How Supply and Demand Effect Each Other • Supply effects demand, b/c when there is small amounts supplied than the demand goes up, b/c not everyone demanding the product is receiving it • When supply is high the demand goes down, b/c everyone demanding it is getting it • Demand effects supply, b/c when more people buy a product the supply goes down. The less people buy a product the higher the supply

44. Price Price Quantity Demanded Quantity Supplied $30 8 $30 1 $25 7 $25 2 $20 6 $20 3 $15 4 $15 5 $10 2 $10 7 $5 1 $5 9 Demand/SupplySchedules Demand Schedule Supply Schedule