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Supply and Demand in a Market Economy

Supply and Demand in a Market Economy. What is Supply and Demand?. Supply = The amount of a good or service that a producer is willing & able to make available at a range of prices Demand = The want, willingness & ability to exchange a good/service.

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Supply and Demand in a Market Economy

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  1. Supply and Demand in a Market Economy

  2. What is Supply and Demand? Supply = The amount of a good or service that a producer is willing & able to make available at a range of prices Demand = The want, willingness & ability to exchange a good/service I made a delicious pizza! WAHOOO!! *All other factors remaining constant! WE’LL TAKE IT!!!

  3. Graphing Supply and Demand Economic charts are always graphed in this manner: Supply Demand PRICE D is for down Sup (S = up) QUANTITY (AMOUNT)

  4. Balancing the Budget In order for buyers and sellers to be satisfied with a purchase, a balance must be made. Equilibrium Point = The quantity of a supplied good meets the demand! (both the buyer and seller are satisfied) $1 is the perfect price for me! Any more and I’ll go eat something else. My goal is to sell my pizza for as much money as people are willing to pay Looks like $1 is the perfect price!

  5. Graphing Equilibrium Point EquilibriumSupply Point Demand PRICE QUANTITY (AMOUNT)

  6. What Happens If… If the price of a good is too LOW, a shortage occurs If the price of a good is too HIGH, a surplus occurs. Come and get it! Pizza for a nickel! We ALL want pizza since the price is so low! Oh no, I don’t have enough pizza for ALL these guys! I should never have charged $50 per pizza…now NOBODY will buy my food and I have all these extra pizzas!

  7. Graphing a Shortage EquilibriumSupply Point Demand PRICE QUANTITY (AMOUNT)

  8. Graphing a Surplus EquilibriumSupply Point Demand PRICE QUANTITY (AMOUNT)

  9. What does “law” mean ? Price Relationships to Know: • LAW OF DEMAND = INVERSE RELATIONSHIP • Price increase = quantity demanded decrease • Price decrease = quantity demanded increase • Ex: you go to the store for ice cream & it’s $1 a bar. You buy 10! You go back the next day, it’s $5 a bar….. WOAH! Now, you only buy 2 (your demand is less) • LAW OF SUPPLY = DIRECT RELATIONSHIP *put your producer hat on!* • Price increase = quantity supplied increases • Price decrease = quantity supplied decreases • Ex: I own a pizza place. Every other pizza place in Newtown just went from selling pizza for $10 to selling it for $20. Before people realize that’s RIDICULOUS – I want to stock up on as many pizzas as possible to sell (it’s not going to last).

  10. RECOGNIZE THE DIFFERENCE! S S S PRICE PRICE D D PRICE QUANTITY (AMOUNT) QUANTITY (AMOUNT) D A SHIFT in demand A SHIFT in supply QUANTITY (AMOUNT) S S S PRICE PRICE D D PRICE QUANTITY (AMOUNT) QUANTITY (AMOUNT) A change in QUANTITY demanded A change in QUANTITY supplied D QUANTITY (AMOUNT)

  11. What Happens If… If there is an INCREASE in demand, the demand curve moves RIGHT. How do we reach a new Equilibrium Point? EquilibriumSupply Point D2 D1 PRICE QUANTITY (AMOUNT)

  12. The same is true for the Supply Curve! If there is an INCREASE in supply, the supply curve moves RIGHT. If there is a DECREASE in supply, the supply curve moves LEFT What Happens If… If there is a DECREASE in demand, the demand curve moves LEFT. How do we reach a new Equilibrium Point? EquilibriumSupply Point D1 D2 PRICE QUANTITY (AMOUNT)

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