Law of Supply

2. Law of Supply • Businesses will produce more products when they know they can sell them at a higher price. • Ex: If you know you can sell your sneakers for $100 a pair you will want to make more sneakers than if you could only sell them for $10.

3. Law of Demand • Consumers will demand (want) more of a good when the price for the good is low. • Ex: As a consumer you will want to buy more sneakers if they cost $10 rather than if they cost $100.

4. So what will be the price of the sneakers? $100, $10 or somewhere in between?

5. The Supply and Demand Graph • Where the 2 lines intersect is the price the good will be sold at. At $45 a consumer is willing to buy (demands) 2 pairs, and the producer is willing to supply 2 pairs of sneakers. Why wouldn’t a producer sell the sneaker for $100? Why wouldn’t a producer sell the sneaker for $10? Supply Price $100 $45 $10 Demand 2 1 3 Quantity

6. Equilibrium price: the price where supply and • demand are equalthe highest price a good can be sold at and not have a shortage (not enough) or surplus (too much). • The Equilibrium Price prevents producers from charging too much for a good, because they will never sell it at a high price if there is no demand. Price Supply $100 $45 Equilibrium Price = ???? $10 Demand 2 1 3 Quantity

7. Shortage and Surplus • What does it mean to have a shortage? • What does it mean to have a surplus?

8. Shortage vs. Surplus • What happens to the price if we have too much supply and no demand for a good? • SURPLUS: Supply is greater than demand = lower price • SALES at stores are usually the result of a surplus.

9. Shortage vs. Surplus • What happens to the price if we have a lot of demand but not enough supply of a good? • SHORTAGE: Demand is greater than supply = higher price • GAS PRICES go up during gas shortages.

10. SUPPLY AND DEMAND PRACTICE 1. Draw a Supply and Demand Graph. Label (supply “S”, demand “D”, equilibrium price “E,” Price axis, and Quantity axis.

11. Gum Supply and Demand Graph • 2. What happens if demand is high and supply is low? • When gum costs $1 what quantity is demanded? • When gum cost $1 what quantity is supplied? • What is the shortage of gum (demanded - supplied) ? • 3. What happens is demand is low but supply is high? • Gum costs $3 what quantity is demanded? • Gum costs $3 what quantity is supplied? • What is the surplus of gum (supplied - demanded)?

12. Gum Supply and Demand Graph • 4. Circle on the graph at what price the quantity supplied and demanded are the same (equal)?_____________ • What is this point called? _________________________ • 5. What would happen if the government set the price of gum at $4? • 6. What would happen if the government set the price of gum at $2? • 7. How does having price set by supply and demand benefit consumers?

13. Increase in Demand = curve shifts to the right Decrease in Demand = curve shifts to the left. Illustration of Demand Shift Price Price D2 D2 D1 D1 Quantity Quantity The less you buy the more you will move to the left!

14. Demand Factors • 1. Consumer Disposable income: income left over after necessities are purchased. More $$ to spend on luxuries increases demand for them. • Example: If US Gov’t gave citizens a tax credit ($$$) then people would have more money to spend (more disposable income). Would demand increase or decrease?

15. Demand Factors • 2. Consumer tastes: popularity of a product • Example: Consumers who used to prefer board games now prefer video games. What happened to demand for board games?__________

16. Demand Factors • 3. Consumer expectations: what consumers expect to happen in the future • Example: Consumers expect that a new version of the iPod will come out around Christmas. What happened to demand for the OLD iPod?

17. Demand Factors • 4. Number of consumers: how many people live in a certain area • Example: A new housing development was built in Enfield. Did the number of consumers in Enfield increase or decrease? So what happened to demand?

18. Demand Factors • 5. Substitutes: competing products that can be exchanged when the price of one becomes too high. Honda & Toyota • Example: Dell raised the price of its laptops, so consumers started to buy the lower priced Sony laptop. What happened to demand for Dell laptops? WHAT IS ANOTHER SUBSTITUE GOOD YOU CAN THINK OF?

19. 6. Complementary goods: Products that are used together. • Example: DVD players have become popular among consumers. What happened to demand for DVDs? WHAT IS ANOTHER SET OF COMPLEMENTARY GOODS YOU CAN THINK OF?

20. Increase in Supply = curve shifts to the right Decrease in Supply = curve shifts to the left. Illustration of Supply Shift S2 S1 Price S1 Price S2 Quantity Quantity

21. Why does supply shift? • Supply can increase (move right) and Decrease (move left) depending on certain conditions in the market. • STOP and Think…if it reduces the cost of production (cheaper to produce) then supply of that good went ____.

22. Supply Factors • 1. Number of suppliers: more suppliers = more supply • Example: A new shopping plaza opened on 301 in Enfield. Did the # of suppliers increase or decrease? Did supply increase or decrease?

23. Supply Factors • 2. Government Regulations: tighter government regulation of production makes it more expensive to supply goods decrease in supply • Example: Congress raised the minimum wage to $6.55 an hour from $7.25. What is the impact for fast food restaurants? Did the supply of fast food increase or decrease?

24. Supply Factors • 3. Taxes: Higher taxes raises business costs (supply decrease), lower taxes reduces them (supply increase) • Example: Congress cut the tax on American corporations to try and boost production in the United States. Did costs for corporations go up or down? Did supply increase or decrease?

25. Supply Factors • 4. Subsidies: gov’t payment to an individual, business, or group to reduce the cost of production. • Example: Congress gave all corn producers a subsidy for each bushel of corn they produce. Did the cost of corn production go up or down? Did the supply of corn increase or decrease?

26. Supply Factors • 5. Producer Expectations: If producers think that consumer demand will drop, then they reduce supply. If they think demand will increase then they increase supply. • Example: As the weather gets warmer near the end of the school year clothing stores expect consumers will want to buy summer clothes. Did the supply of winter clothes increase or decrease? Did the supply of SUMMER clothes increase or decrease?

27. Exit Ticket: 1. Draw the supply and demand graph, with these parts labeled: supply line, price, quantity, demand line, equilibrium price 2. When does a surplus occur? 3. When does a shortage occur?

28. Day 2 • Objective: Same • Homework: Complete Types of Businesses Reading and Guided points. • Answer: Draw a supply and demand curve. Show how an increase in the price of gas affects the sales of SUV’s

29. Day 3 • Objective: Same • Homework: • Answer: Draw a supply and demand curve. Show how PS4 coming out soon affects the supply and demand of PS3.

30. Make your own Business • Out of the business types we learned about which type would you like to have and why? • Must be a complete paragraph.