Download Supply & Demand

Free Markets
• People have choice – they buy what they want
• Profit is the motivation for sellers
• If you didn’t make a profit, you wouldn’t want
to waste your time providing the good or
service
• Competition is the rivalry between sellers to
gain a market advantage – to sell the most and
make the highest profit
Supply and Demand
• The relationship between sellers and buyers is
called Supply and Demand
• Supply – the quantity of goods or services that
producers are willing to provide at various
prices
• Demand – the amount of goods or services
that a consumer is willing to buy at various
prices
Supply and Demand
• The Law of Supply states that suppliers will
supply more at high prices than at low prices
• There is a direct relationship between price
and quantity of goods that producers will
supply
• If you keep supply low, you can charge a
higher price
– iPhone 6 - $199 with a plan, $649 without
I Have Candy
• How much do you want it?
– Each person will get money
– Do I have to sell it to you?
– Why would I give it to the lowest bidder?
– What if I said you would lose points on a test if
you didn’t throw away the wrapper?
• Incentives
– What induces us to act
• Can be financial, moral
Price
• If there is an ample supply but no demand,
what will happen to your price?
– Amazon Fire Phone - $0.99
Price
• If producers cannot make a profit at the
market price, they have to reduce their costs
– Use cheaper materials
• Bendy iPhone
• Send production overseas
– iPhone is assembled in Korea, otherwise it would
be even more expensive
Supply Wrap-Up
• If supply increases while demand remains
constant, what happens to price?
• What happens to price when supply is low?
• How do producers know how much supply is
in the marketplace?
• If the price is high, what are suppliers likely to
do?
The Law of Demand
• A change in the demand for a good will cause a
change in the market price
– More people want the iPhone 6
• If supply remains the same, a surge in demand
will cause the price to rise
– You can charge customers more because it is
scarce
The Law of Demand
• If demand remains the same, an increase in
supply will cause price to fall
– I have too many Fires – so I have a fire sale!
($0.99)
• If demand remains the same, a decrease in
supply will cause prices to rise
– Fewer iPhones are available
– People will pay more to get one on Amazon, eBay,
Craig’s List
Demand Wrap-Up
• List some events that affect demand
• How do manufacturers know when demand
will change?
• How does a change in demand affect price?
• How does a change in demand affect the
quantity that manufacturers are willing to
supply?
• What if there is a natural disaster?
– How does that affect demand for certain
products?
Activity – Supply/Demand? Price?
• What if?
– College has 80% male/20% female ratio
– The best SAT tutor in the world has limited time to
meet with students
– Paris Hilton pays $13,000 for a puppy
Activity – Supply/Demand/Price?
• What if?
– Tesla makes a $35,000 electric car that is even
cooler than the current model?
• Supply/Demand/Price for gasoline
• Supply/Demand/Price for charging stations
• Supply/Demand/Price for think of other inputs and
outputs related to the car
– Hint: Gas Stations, car parts suppliers, our environment
– Come up with significant ramifications