Download Supply and Demand

And the Lakers!!
Economics,
January 14, 2014
Why?
Generally speaking,
the price of something will
go up if the demand goes up.
Why? Because the seller
thinks he or she can get
more money for whatever he
or she is selling.
Supply:
how much of
something you have.
Demand: how much of
something people want.
supply +demand=
price of something.
Professional
athletes:
How much is a superstar
in the NBA such as Kobe,
paid compared to a
benchwarner (Ryan
Kelly)?
Kobe
$30,453,805
Kelly, a rookie, will
earn the salary of
$490,180
Market:
Ticketmaster
Supply: In a box there is only 18
seats
Price: Average NBA All-Star
Game ticket prices at this same
time last year were $335.
Demand: High NBA All Star Game
ticket prices average $2130
"How
many superstars are
there in the league, and
how many average players
are there?
The cost for the special
items is usually higher,
because they are harder to
acquire.
If
you could pay $600 or $350
for a Laker ticket which
would you pay?
If
you only make $400 a
month and a ticket is $600
are you likely to buy a ticket?
The
Clippers are playing
well this season, so
scalpers are selling the
tickets for more. If they
start playing badly again
like usual, the price of
tickets will drop.
People
associate beer with
basketball so people will pay
for it at any price.
It is $10.00 for a Blue Moon
at Staples, when in reality a
single 12 oz bottle is sold at
Ralph’s for $1.49
For
Jerry Buss, the owner, to
make money off the Lakers
tickets must cover the cost of
production so he will earn a
profit.
The production in this case is
Kobe’s huge salary, as well as
the salary of the other Lakers.
While
Jerry Buss may want to
sell the tickets at a million
dollars a piece, he won’t
because then no one will buy
them.
He has to consider how much
people will pay, and how to
make a profit.
 Demand
for the product, The
Tickets, varies inversely with its
price.
 Meaning: As long as they are
Champions, win Finals, more people
will want the tickets so the price
will be high.
 If the Miami Heat wins Finals, less
people will want tickets for Laker
Games and the price will go down.
The
name of the process
that takes place so the
Consumer, Laker fans, and
the Producer, Jerry Buss,
can make the exchange of
buying Laker tickets.
 Demand
/\ Price /\ = Supply _
 Want UP $ UP = Supply Same
 Demand
\/ Price \/ = Supply _
 Want DOWN $ DOWN= Supply Same
 Demand
_ Price /\ = Supply \/
 Want SAME $ UP= Supply DOWN
 Demand
_ Price \/ = Supply /\
 Want Same $ DOWN= Supply Up
 Demand
/\ Price _ = Supply /\= Demand
 Want UP $ SAME= Supply UP=Want
 Demand
/\ Price /\ = Supply \/
 Want UP $ UP= Supply DOWN
 Demand
\/ Price \/ = Supply/\
 Want DOWN $ DOWN = Supply UP
 So
that we can try to reach Equilibrium (very
unlikely)
 They
intersect at the price where
the amount producers are willing
and able to supply converges with
the amount consumers are willing
and able to purchase.
 This point of convergence is called
the equilibrium price.
 Theoretically it is where supply and
demand meet and prices settle.
 If
suppliers (Jerry Buss) ignores
demand, and continues to add seats
to Staples and prices tickets too
high, they will not be purchased.
Instead they will sit empty.
 If Staples only sells to few seats,
demand will go unmet and
consumers will clamor for more.
 Plot
supply and demand for a product on the
same graph
 We discover how producers and consumers
will interact in the marketplace and where
exactly they will converge (EQUILIBRIUM
PRICE).
 Example: If we plot Lakers tickets available
(supply) & how many people who want
Lakers tickets (Demand)=Jerry Buss
(Producer) + Lakers Fans (Consumers)
interact on Ticketmaster (Marketplace)=best
price for all parties (converge).
This clamoring for more goods might encourage new
suppliers to enter the market. Think Iphone and Smart
phones.
If factors such as the introduction of new technology or decreasing
production costs shift the supply curve to the right (S2) or if other
factors such as new government regulations or increasing production
costs shift the supply curve to the left (S3) the market will produce a
new equilibrium price.
Similarly, if demand shifts for any reason (the changing
price of substitution or complementary goods, changing
income, etc.) the market will generate a new
equilibrium price
Choose a product you care about!
Demand
A
Price of Item
Supply
B
$12
0
$90
$60
C equilibrium
$30
$15
$0
0
5
10 15 20 25 30
Quantity of Item

Demand
Price
Supply
Up Down Same
Up Down Same
Up Down Same
 1.
 2.
 3.
 4.
 5.
 6.
 7.