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Understanding Supply and Demand in Business: Insights from Steve Jobs

Explore the motivations and pricing strategies of former Apple CEO Steve Jobs, and learn about the law of supply, costs of production, and the factors that can shift supply. Discover how equilibrium price impacts market clearing and the concepts of shortage and surplus.

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Understanding Supply and Demand in Business: Insights from Steve Jobs

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  1. Consider… The view of former Apple CEO Steve Jobs. What motivated him to innovate? How did profit motivate him? Why did he set prices for Apple products so high?

  2. Law of Supply For BUSINESSES

  3. Law of Supply, OR WHAT HAPPENS WHEN PRICE CHANGES As the price of a good or service rises, the quantity supplied rises. As the price of a good or service falls, the quantity supplied falls. It’s a DIRECT relationship!

  4. What are costs of production? Prices that businesses have to pay to MAKE their goods and services. Examples of costs of production: Labor: Land: Capital:

  5. What happens when we changeANYTHING OTHER THAN PRICE? Increase in supply = shift right Supply shifts right when… Costs of production are LOWER (because profit margin is higher!) Improved technology

  6. What happens when we changeANYTHING OTHER THAN PRICE? Decrease in supply = shift left Supply shifts left when… Costs of production are HIGHER (because revenues are lower!) Natural disaster

  7. Starbucks now has a more efficient coffee maker. • Starbucks drops health insurance for all their employees (this saves Starbucks a lot of money on labor costs). • Starbucks gives all their employees $0.25 more per hour. • Starbucks raises the price of coffee by $0.10. • Starbucks sells coffee for $1.00 less on Mondays. Price change, a shift left, or a shift right?

  8. Where supply and demand cross is the perfect price. • That price is set by the interaction of suppliers and consumers. • At that price, supply and demand are equal. • There is nothing leftover (surplus) and no one who still wants the product (shortage). Equilibrium Price = Market Clearing Price

  9. Equilibrium: X marks the spot

  10. On your graph, below your equilibrium price write “shortage.” • This means demand is greater than supply. • More people want the product, but the businesses won’t sell it at that low of a price. • On your graph, above your equilibrium price write “surplus.” • This means supply is greater than demand. • Less people want the product and the businesses have extra left-over that is too expensive. Shortage and Surplus

  11. If there is a surplus: • businesses lower prices until equilibrium is reached. • Price lowers until demand reaches supply. • If there is a shortage: • Businesses raise prices until equilibrium is reached. • Price raises until supply reaches demand. How equilibrium affects price

  12. Questions • 1. What is the equilibrium price and quantity? • Quantity Price • A 10 $2 • B 30 $2 • C 20 $3 • D 30 $3

  13. 1. When economists refer to “demand,” they mean which of the following? • A How much satisfaction buyers receive from a purchase • B How much consumers will purchase at different prices • C How much sellers will supply at a particular price • D How much people want the product if is free Write the number and letter for each in your notes.

  14. 2. When the price of a product rises, we would expect A the demand of the product to increase B the number of producers of the product to decrease C the number of producers of the product to increase D the number of consumers of the product to remain constant Write the number and letter for each in your notes.

  15. 3. What would cause a demand curve to shift left, or inwards? • A A change in the price of a good • B A government survey that says the product is good for you • C A government survey that says the product is bad for you • D Improved technology to make the product Write the number and letter for each in your notes.

  16. Answers: • B • C • C

  17. Non-price determinants of Supply • Cost of production (COP) / improved technology Right: new machines • Government policies Right: subsidy = tax break to a company (usually for environmental or health reasons)

  18. Non-price determinants of Supply • Natural disasters / international relations Right: tsunami in Japan helps American car makers • Number of producers / Competition Right: more fast food places in a town

  19. Non-price determinants of Supply 5. Producer expectations Right: Suppliers expect higher demand for coats Sept – Dec

  20. Practice: match the left shift example with the supply determinant. a. Jacket manufacturers are worried that this winter is expected to be the hottest on record for the past 20 years b. Tax increase c. Lenox Mall is closed down for 2 years due to construction d. The population of a country declines, which means fewer workers for low wages e. Trade embargo (no trade at all) with Canada because they insulted the US • COP • Government policies • Natural disasters/international relations • Competition / # of producers • Producer expectations

  21. Answers A – 5 B – 2 C – 4 D – 1 E – 3

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