supply & demand chapter 2. demand desire, willingness & ability to buy a product desire,...
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Supply & Supply & DemandDemand
Chapter 2Chapter 2
DemandDemand
Desire, willingness & ability to buy a Desire, willingness & ability to buy a productproduct
MustMust Want to buy a productWant to buy a product Be able to pay for the productBe able to pay for the product
Law of DemandLaw of Demand
Amount of a good or service Amount of a good or service consumers are consumers are willing & ablewilling & able to buy to buy at different pricesat different prices
Price low, more people will buy a Price low, more people will buy a productproduct
Price high, less people will buy a Price high, less people will buy a productproduct
Law of Demand CurveLaw of Demand Curve
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
- Goods or Services sold at a certain price
- Line on graph is Demand Curve
- Label D-1
- Always have price & quantity
- Curve goes down left to right
Carl’s Custom T-Shirts
Demand ShiftsDemand Shifts
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
Demand Curve Shift to Right
D-1
D-2
Demand ShiftsDemand Shifts
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
Demand Curve Shift to Left
D-1
D-2
Demand ShiftsDemand Shifts
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
Demand Curve Shift
D-1
D-2
D-3
Demand ScheduleDemand Schedule
A ChartA Chart
Shows amount of a product that Shows amount of a product that people will buy at that price.people will buy at that price.
TypesTypes Individual Individual MarketMarket
Individual Demand Individual Demand ScheduleSchedule
Demand of only Demand of only one consumerone consumer
PricePrice QuantityQuantity
DemandeDemandedd
$45$45 00
$30$30 00
$25$25 11
$15$15 33
$10$10 66
$3$3 1010
Market Demand Market Demand ScheduleSchedule
PricePrice QuantityQuantity
DemandedDemanded
$45$45 5050
$30$30 5050
$25$25 100100
$15$15 300300
$10$10 600600
$3$3 10001000
Demand of EveryoneDemand of Everyone Businesses use this Businesses use this
chartchart Predict how much to Predict how much to
make for what pricemake for what price Decide quantity of Decide quantity of
good at a specific good at a specific priceprice
Changes in DemandChanges in Demand
IncomeIncome
Consumer likes & dislikesConsumer likes & dislikes
Substitute good & servicesSubstitute good & services
Complementary goodsComplementary goods
IncomeIncome
Money a person makesMoney a person makes
Increase in income – buy moreIncrease in income – buy more
Decrease in income – buy lessDecrease in income – buy less
Likes & DislikesLikes & Dislikes
Tastes changeTastes change
Technology changesTechnology changes
PopularityPopularity
Substitute Goods or Substitute Goods or ServicesServices
Good or service that can take place of Good or service that can take place of anotheranother
Interchangeable goodsInterchangeable goods Price of one substitute will affect the Price of one substitute will affect the
demand for anotherdemand for another
Ex:Ex: Margarine for butterMargarine for butter Powdered milk for fresh milkPowdered milk for fresh milk
Complementary GoodsComplementary Goods Goods or services that are used togetherGoods or services that are used together
EX:EX: Peanut Butter & JellyPeanut Butter & Jelly DVD’s & DVD playerDVD’s & DVD player
If price of jelly goes up price of peanut If price of jelly goes up price of peanut butter may go downbutter may go down Why????Why????
SupplySupply
The amount of a goodThe amount of a good
that is available to buythat is available to buy
Law of SupplyLaw of Supply
Price of a good or service rises, Price of a good or service rises, producer will be producer will be willing & ablewilling & able to to supply moresupply more
Price of a good is higher, a larger Price of a good is higher, a larger quantity of the good will be producedquantity of the good will be produced
Price of good is lower, a smaller Price of good is lower, a smaller quantity of good will be producedquantity of good will be produced
Law of Supply CurveLaw of Supply Curve
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
- Goods or Services sold at a certain price
- Line on graph is Supply Curve
- Label S-1
- Always have price & quantity
-Curve goes up left to right
Carl’s Custom T-Shirts
Supply ShiftSupply Shift
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
- S-1
- S-2
Supply Curve Shift to Right
Law of Supply CurveLaw of Supply Curve
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
- S-1
- S-2
Supply Shift to Left
Law of Supply CurveLaw of Supply Curve
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
- S-1
- S-2
- S-3
Supply Shift
Supply ScheduleSupply Schedule
Lists quantity of a good that a Lists quantity of a good that a company will supply at different company will supply at different pricesprices
TypesTypes Individual Individual MarketMarket
Individual Supply Individual Supply ScheduleSchedule
PricePrice QuantityQuantity
SuppliedSupplied
$25$25 88
$20$20 77
$18$18 66
$15$15 44
$10$10 22
$5$5 00
Shows supply of
ONE company
Market SupplyMarket Supply
PricePrice QuantityQuantity
SuppliedSupplied
$25$25 100100
$20$20 9595
$18$18 8585
$15$15 7272
$10$10 5050
$5$5 3434
- Lists quantity of a good that ALL companies will supply at different prices
- Have larger numbers of quantities supplied
Changes in SupplyChanges in Supply
IncomeIncome Likes & DislikesLikes & Dislikes Cost of ProductionCost of Production TechnologyTechnology Opportunity CostOpportunity Cost
Cost of ProductionCost of Production
Cost of thingsCost of things
Natural Resource, capital & laborNatural Resource, capital & labor
Increase in Cost of production, Increase in Cost of production, decrease in quantity supplieddecrease in quantity supplied
TechnologyTechnology
Speeds up productionSpeeds up production
More efficientMore efficient
Less costsLess costs
Opportunity CostOpportunity Cost
Use resources to create different Use resources to create different products for more moneyproducts for more money
EX:EX: Make custom hats instead of T-shirtsMake custom hats instead of T-shirts Make more profitMake more profit
Increase supply of hats, decreased Increase supply of hats, decreased supply of T-Shirtssupply of T-Shirts
PricesPrices
Value of a product Value of a product
Based on Supply & demand of a productBased on Supply & demand of a product
Quantity demanded equals quantity Quantity demanded equals quantity suppliedsupplied
Producers willing to sell at a price Producers willing to sell at a price consumers are willing buyconsumers are willing buy
Equilibrium PriceEquilibrium Price Price at Price at
which the which the amount amount demanded demanded equals the equals the amount amount suppliedsupplied
D-1D-1 S-1S-1
0
5
10
15
20
25
30
35
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
Supply & Demand for Carl’s T-Shirts
SurplusSurplus
Sell above Sell above EquilibriuEquilibrium price, m price, not not enough enough buyersbuyers
Surplus – Surplus – more more goods than goods than buyersbuyersNumber of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
Supply & Demand for Carl’s T-Shirts
surplus
ShortageShortage
Sell below Sell below EquilibriuEquilibrium price, m price, not enough not enough productproduct
Shortage – Shortage – more more buyers buyers than goodsthan goods
Number of T-shirts bought per semester
Pri
ce p
er
T-s
hir
t (d
olla
rs)
0 5 10 15 20 25 30 35 40 45
0
5
10
15
20
25
30
35
Supply & Demand for Carl’s T-Shirts
Shortage
Market StructuresMarket Structures
Classification of a market based on the type Classification of a market based on the type and amount of and amount of competitioncompetition among among
companiescompanies
Market StructuresMarket Structures
TypesTypes Perfect competitionPerfect competition Monopolistic competitionMonopolistic competition OligopolyOligopoly MonopolyMonopoly
Perfect CompetitionPerfect Competition
Simplest market structureSimplest market structure
Large number of companies all Large number of companies all produce an identical product & sell produce an identical product & sell it for the same priceit for the same price
Conditions for Perfect Conditions for Perfect CompetitionCompetition
Market made up of many buyers & Market made up of many buyers & sellerssellers
Sellers sell identical productsSellers sell identical products
Buyers and sellers know a lot about the Buyers and sellers know a lot about the productsproducts
Buyers & sellers can enter & leave the Buyers & sellers can enter & leave the market freelymarket freely
Perfect CompetitionPerfect Competition
BarriersBarriers Start up CostsStart up Costs
Money paid before product Money paid before product reaches consumerreaches consumer
TechnologyTechnologySpend a lot of time learning new Spend a lot of time learning new technologytechnology
MonopolyMonopoly
Opposite of Perfect competitionOpposite of Perfect competition A single supplier controls a marketA single supplier controls a market Only supplier in the marketOnly supplier in the market Consumers are forced to pay price set by Consumers are forced to pay price set by
companycompany EX:EX:
City WaterCity Water Electric companyElectric company
Monopolistic Monopolistic CompetitionCompetition
Like Perfect competition except Like Perfect competition except products are not identicalproducts are not identical
Products are made just a little Products are made just a little differentdifferent
Want consumers to know the Want consumers to know the difference between the productsdifference between the products
EX:EX: Levi’s & WranglerLevi’s & Wrangler PensPens Nike & AddiasNike & Addias
OligopolyOligopoly
Very large suppliers control the marketVery large suppliers control the market One company acts, others will followOne company acts, others will follow Compete through advertisingCompete through advertising Company lowers prices, others will Company lowers prices, others will
lower pricelower price EX:EX:
McDonalds, Burger King & Wendy’sMcDonalds, Burger King & Wendy’s Coca-Cola & PepsiCoca-Cola & Pepsi Northwest & American AirlineNorthwest & American Airline