Understanding Supply and Demand: Price and Quantity Relationship

1. SUPPLY DEMAND

2. Plot the following: Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9

3. Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9 P Qd 9 just a point on the curve. To be on the demand curve a person must be WILLING and ABLE to purchase the product or service. 8 7 6 D is the entire curve. 2 3 9 5 Q

4. Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9 P Qd 9 just a point on the curve. There is an ___________ relationship between price and quantity. 8 inverse 7 6 D is the entire curve. 2 3 9 5 Q

5. 9 8 7 6 D 2 3 9 5 Q Definitions: Quantity demanded--it is the amount that will be purchased at a specific P. Demand--it is a schedule of quantities of goods and services that will be purchased at various prices at a specified time, all other things held constant.

6. 9 8 7 6 D 2 3 9 5 Q

7. Qd 9 just a point on the curve. 8 7 6 D is the entire curve. 2 3 9 5 Q Price changes Quantity Demanded Price DOES NOT CHANGE DEMAND!!!!!!!!

8. Only one variable Qd PRICE PRICE DOES NOT DEMAND!!

10. GUESS HOW MANY DETERMINANTS OF DEMAND THERE ARE? 8 And if you don’t memorize these variables, YOU WILL FAIL THIS CLASS!! ARE THERE ANY QUESTIONS?

11. Eight Determinants of Demand: 1. # of consumers

12. 6 $36.95

15. Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods As people’s incomes go up demand for normal goods increases. As people’s income go down, demand for normal goods decrease. 3. Income--Inferior Goods As people’s incomes go up demand for inferior goods decreases. As people’s income go down, demand for inferior goods increases.

17. ______Used Furniture Store ______Lazy Boy Store

18. $25

21. Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences

24. Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes

26. Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes 6. Price of related products: Complements

28. Eight variables that shift Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes 6. Price of related products: Complements 7. Expected future P’s by consumers 8. Expected future Y by consumers

29. The price of airline tickets doubles, what happens to the market for bus tickets? P S Increase in price of related product— Substitute P1 P D1 D Q Q1 Q Your market is: Bus Tickets

30. SUPPLY

31. Plot the following: Price Quantity Supplied Qs P $6 2 7 3 5 8 9 9

32. P S is the entire curve. Qs just a point on the curve. Q Definitions: Quantity supplied--it is the amount that will be sold at a specific P. Supply--it is a schedule of quantities of goods and services that will be sold at various prices at a specified time, all other things held constant.

33. P S is the entire curve. Qs just a point on the curve. Q Price changes Quantity Supplied Price DOES NOT CHANGE SUPPLY!!!!!!!!

35. Only one variable Qs PRICE PRICE DOES NOT SUPPLY!!

36. GUESS HOW MANY DETERMINANTS OF SUPPLY THERE ARE? 5 And if you don’t memorize these variables, YOU WILL FAIL THIS CLASS!! ARE THERE ANY QUESTIONS?

37. Five determinants of Supply: 1. # of suppliers 2. Costs 3. Physical Availability of Resources 4. Technology 5. Expected Future Prices by Suppliers

40. Supply and Demand Questions

41. P How did the terms P’s and Q’s come about? Q In English pubs, ale is ordered by pints and quarts. So in old England, when customers got unruly, the bartender would yell at them mind their own pints and quarts and settle down. It's where we get the phrase "mind your P's and Q's"

42. There are four steps in figuring out supply and demand graphs: 1. DON’T THINK! 2. Which curve is affected and why? 3. Is it an increase or a decrease? 4. JUST DRAW IT!

43. What happens to the market for oranges when there is a frost that hits Florida? S1 P S Decrease in the physical availability of resources. P1 P D Q1 Q Q Your market is: Oranges

44. What happens to the market for downloaded music when the price of an MP3 player or Ipod goes down? P S Decrease in the price of a complement. P1 P D1 D Q Q1 Q Your market is: Downloaded Music

45. What happens to the market for downloaded music when the royalties paid to the song artist goes up? S1 P S Increase in costs. P1 P D Q1 Q Q Your market is: Downloaded Music

46. The U.S. goes through a boom economy, what happens to the market for steak? P S Increase in incomes— Normal goods. P1 P D1 D Q Q1 Q Your market is: Steak

47. The price of milk doubles; what happens to the market for cereal? P S Price of related product— complement. P P1 D D1 Q1 Q Q Your market is: Cereal

48. U.S. automakers use robots to produce its cars, what happens to the market for foreign automobiles? P S Price of related product— substitute. P P1 D D1 Q1 Q Q Your market is: Foreign autos

49. The price of airline tickets doubles, what happens to the market for bus tickets? P S Increase in price of related product— Substitute P1 P D1 D Q Q1 Q Your market is: Bus Tickets

50. You can MAKE MONEY by knowing the laws of supply and demand.