Download Unit 6 * Intro to Microeconomics Lesson 6.1 * Supply and Demand

6.2 – Supply and
Demand
Objective: Identify how
supply and demand impact
price
II. Supply and Demand
A.
Demand -desire to own something and the ability to
pay for it
1. Law of demand- When a good’s price is lower,
consumers will buy more of it.
When the price is higher, consumers will buy less of
it.
Draw a Demand Curve
B.
Supply -the amount of goods available
1.
Law of supply- (Think like a producer) The higher the
price, the larger the quantity produced.
As price falls, quantity of supply falls.
PRICE
PROFITS
PRICE
PROFITS
Draw a Supply Curve
C.
Equilibrium Price -When quantity demand
and quantity supplied are at the same
price
1. Equilibrium is ideal for producers because
more of their product gets sold
2. Equilibrium is ideal for consumers
because the right amount of product is
available for the people who want it
Identify Equilibrium Price
Equilibrium Graph Practice
Graph
the following Supply
and Demand Schedules
Identify the equilibrium
price
D.
Surplus -If supply exceeds demand
1. When price is too high, goods and
services are limited by demand
E.
Shortage – if demand exceeds supply,
there will be a shortage
1. Price is too low so goods and services
exchanged are limited by supply
Identify Shortage & Surplus
III. Changes in Demand
 A.
Change in the quantity demanded due to a
price change occurs ALONG the demand curve
Demand Curve for Cupcakes
$6
•An increase in the Price of
Cupcakes from $3 to $4
will lead to a decrease in
the Quantity Demanded of
Widgets from 6 to 4.
$5
Price per Cupcakes
•At $3 per Cupcakes, the
Quantity demanded of
widgets is 6.
$4
$3
$2
$1
$0
0
2
4
6
Quantity Demanded of Cupcakes
8
10
12
•
•
•
•
•
•
•
B. Demand Curves can also shift in response to the
following factors:
(BITER: factors that shift the demand curve)
1. Buyers (# of): changes in the number of
consumers
2. Income: changes in consumers’ income
3. Tastes: changes in preference or popularity of
product/ service
4. Expectations: changes in what consumers expect
to happen in the future
5. Related goods: compliments and substitutes
•
•
•
•
Prices of related goods affect on demand
a. Substitute goods a substitute is a product that can
be used in the place of another.
-The price of the substitute good and demand for the other
good are directly related
-For example, Coke Price
Pepsi Demand
•
b. Complementary goods a compliment is a good
that goes well with another good.
•
-When goods are complements, there is an inverse
relationship between the price of one and the demand for
the other
-For example, Peanut Butter Price
Jam Demand
•
Changes in Demand
Demand
Increase
Curve
in Demand
for Widgets
$6$6
•Several factors will
change the demand for
the good (shift the entire
demand curve)
•As an example, suppose
consumer income
increases. The demand for
Widgets at all prices will
increase.
$5$5
Price per Widget
Price per Widget
$4$4
$3$3
Orginal Demand Curve
Demand Curve for Widgets
New Demand Curve
$2$2
$1$1
$0$0
00
2 2
4
4
6
6
8
8
Quantity
QuantityDemanded
Demanded
ofofWidgets
Widets
10
10
12
12 14
Changes in Demand
Demand
Decrease
Curve
in Demand
for Widgets
$6$6
•Demand will also
decrease due to changes
in factors other than price.
•As an example, suppose
Widgets become less
popular to own.
$5$5
Price per Widget
Price per Widget
$4$4
$3$3
Original Demand Curve
Demand Curve for Widgets
New Demand Curve
$2
$2
$1
$1
$0
$0
0
0
2
2
4
4
6
8
6
Quantity Demanded
of Widgets 8
Quantity Demanded of Widgets
10
10
12
12
IV. Changes in Supply
•A. Change in the quantity supplied due to a price change
occurs ALONG the supply curve
•At $3
•If per
the Cupcakes,
price of Cupcakes
the Quantity
fell to $2,supplied
then the
of widgets
Quantity
is 6.
Supplied would
fall to 4 Cupcakes.
Supply Curve for Cupcakes
$6
$5
Price per Cupcakes
$4
$3
Supply Curve
$2
$1
$0
0
2
4
6
8
Quantity Supplied of Cupcakes
10
12
Changes in Supply
•
•
•
•
•
•
•
•
B. Supply Curves can also shift in response to the
following factors:
(STONER: factors that shift the supply curve)
1. Subsidies and taxes: government subsides
encourage production, while taxes discourage
production
2. Technology: improvements in production increase
ability of firms to supply
3. Other goods: businesses consider the price of goods
they could be producing
4. Number of sellers: how many firms are in the market
5. Expectations: businesses consider future prices and
economic conditions
6. Resource costs: cost to purchase factors of
production will influence business decisions
Changes in Supply
•Supply can also decrease
due to factors other than
a change in price.
Supply
Decrease
in Curve
Supplyfor Widgets
$6
•As an example, suppose
that a large number of
Widget producers go out
of business, decreasing
the number of suppliers.
$5
Price per Widget
$4
$3
Original Supply Curve
Supply Curve
New Supply Curve
$2
$1
$0
0
22
4 4
6 6
8
Quantity
Quantity
Supplied
Supplied
of Widgets
of Widgets
8
10
10
12
12
Changes in Supply
C. Changes in any of the factors other than
price causes the supply curve to shift
either:
 1.
Decrease in Supply shifts to the Left
(Less supplied at each price)
OR
 2. Increase in Supply shifts to the Right
(More supplied at each price)
Shifts in Supply & Demand
BITER – Demand Shifters
Buyers (number of)
Income changing
Tastes changing
Expectations of the consumer
Related goods (Compliments
and Substitutes)
Compliments & Substitutes
Substitute
– Lays Chips or
Ruffles? Coke or Pepsi?
Starbucks or Caribou Coffee?
Compliments – Peanut Butter &
Jelly. Hotdogs & Hotdog Buns.
Ketchup and Fires.
STONER – Supply Shifters
Subsidies
and Taxes
Technology
Other goods
Number of sellers
Expectations of the business
Resource Costs
Demand Shift Practice
 The
Patriots win the 2015 Super Bowl. What
will this do to the demand of Patriots
memorabilia?
Demand Shift Practice
 The
price of toothpaste skyrockets. What
will this do to the demand of
toothbrushes?
Supply Shift Practice
 The
US Gov’t approves a subsidy to aid
Cotton farmers. What will this do to the
supply of Haines cotton t-shirts?
Supply Shift Practice
 Summer
is rapidly approaching. How will
the CEO of Coppertone respond
regarding the supply of sunscreen?
Shifts in S&D of Jelly Beans
Use
your STONER & BITER
acronyms to determine
whether the scenario would
cause a shift in the demand or
supply curve
Is it an increase or a decrease?
Question
What
exchange occurs in
the Factor Market?
Answer
Businesses
buy factors of
production from households
in exchange for income
Question
What
exchange occurs in
the Product Market?
Answer
Households
use their
earned income to buy
finished goods and services
from businesses
Question
What
type of economy
does the US have? Why do
we consider it this?
Answer
Mixed
– individuals, business
and government determine
what gets produced
Question
What
is the law of
demand?
Answer
The
cheaper the item the
more consumers will buy of
it
Question
What
does it mean when
we achieve equilibrium?
Answer
Supply
and demand meet
each other at the same
price
Question
What
is the law of supply
Answer
When
a good can be sold
at a higher price producers
will supply more of it
Question
What does the S and T
stand for in STONER?

Answer
Subsidies/taxes
Technology
Question
What
does the E and R
stand for in BITER?
Answer
Expectations
of the
consumer
Related goods
Question
What
is an example of
substitute goods?
Answer
Ask
Mrs. Patterson
Question
What
is an example of
complimentary goods?
Question
What
does the O and N
stand for in STONER?
Question
What
does the B and I
stand for in BITER?
Answer
Buyers
(number of)
Income changes
Question
A
change in price causes a
shift of the supply or
demand curve?
Answer
Neither.
A change in price
only causes movement
along the curve
Question
Where
do we locate a
shortage and surplus on a
S&D graph?
Question
Shift
A
in supply or demand?
freeze in Brazil kills a large
part of the world’s coffee
crop
Answer
Supply
– Resource Costs
Question
The
price of tea, substitute
for coffee, decreases
Answer
Demand
– Related Goods
Question
Doctors
say that coffee
may help cure migraine
headaches
Answer
Demand
– Expectations of
the Consumer
Question
The
economy takes a dive
and incomes drop to
record laws.
Answer
Demand
income
– change in
Question
Dunn
Brothers opens 50
additional stores
nationwide
Answer
Supply
– Number of Sellers
Warm Up – See what YOU can
do
You
will work independently
Draw the Circular Flow of
Income
Answer the accompanying
questions
Let’s Take a Closer Look at
Supply and Demand Shifts
Analyzing Demand Headlines
 Take
out your “Analyzing Demand
and Supply Headlines” handout
 Let’s recall BITER
 These practice questions will help
you prepare for your quiz tomorrow

Analyzing Supply Headlines
 Let’s
move to Supply Shifters
 Let’s recall STONER
 With someone sitting next to you see if you
can take on these without me
Review


What is the difference
between stocks, bonds
and mutual funds?
Explain what is
happening in graphs B
and C
Answers
Stock – owning a share of a company. Risky
form of investment, but can have very high
returns
 Bond – providing a loan to a company or
government for a certain amount of time
where you earn interest. Low risk –low return
 Mutual Fund – pooling your money with other
investors to buy a collection of stocks and
bonds. Less risky with medium returns
 Graph B – Supply shift: Decrease
 Graph C – Demand Shift: Increase
