Download Lesson 14: Supply and Demand

Lesson 14: Supply and
Demand
Objectives
Give real-world examples of product surplus, shortage,
equilibrium, and diminishing marginal utility
 Describe the characteristics of a free enterprise economy
 Explain the role of the consumer in the supply and
demand cycle
 Describe what happens when supply exceeds demand
 Create a chart illustrating the supply curve, demand
curve, and point of equilibrium
 Forecast future sales based on demand and past sales
 Calculate how many stores an economy can support

1. Supply and Demand
Economic principle that explains the correlation
between the amount of product available to sell
and the willingness of customers to buy that
product
 Free enterprise economy – people are able to
own and operate businesses in a competitive
environment with little or no government
involvement

– The market determines prices supply and demand
2. What is Supply?
The amount of goods produced by
manufacturers and offered for sale in a
marketplace
 IE: you expect when you walk into a
store that it will have the items you are
looking for

3. What is Demand?

The amount of goods customers want and are
willing to buy
– Works in conjunction with supply
When supply is limited and customer demand is
high, prices are high (ie: Kinect)
 When customer demand is limited and supply is
high, prices are low (ie: cookies)
 When supply and customer demand are at the
same level, prices remain constant (ie: toilet
paper and other necessities)

4. Supply and Demand for Goods
1.
•
2.
•
3.
•
Surplus - There are more goods for sale than
customers demand or able to buy
Can happen when prices are too high – often given
a markdown
Shortage – There are not enough goods for
sale to meet customer demand
Can happen when prices are too low – often given a
markup
Equilibrium – supply and demand for an item
are at the same level
Prices remain stable, both customers and owners
are happy
5. Law of Diminishing Marginal Utility
Economic principle similar to supply and demand
States: Consumers will only buy a certain
amount of a specific product regardless of its
low price
 Utility – satisfaction experienced by a customer
through the use or consumption of a product or
service
 Marginal – additional, extra
 Product with diminishing marginal utility has
decreasing value


– Buying a movie on ‘Video On Demand’ – the first time you watch
the movie it will bring you a lot of enjoyment; with each
additional viewing your enjoyment decreases since you already
know the story
6. Voting for Products with Your
Money
Some products are promoted as the
‘latest’ and the ‘best’ but do not sell
because customers did not want, need, or
like them – no matter the price
 These products are withdrawn from the
market
 YOUR money determines whether a
product stays or leaves the market (in
MOST cases)

7. Key Math Concepts
Demand =
Past Sales Number – (% X Past Sales Number)
If demand for granola bars is down 10% from last
month and 50 units were sold last month, the
demand for granola bars is:
Demand = 50 – (.10 X 50)
45
Point of Equilibrium

Supply Curve – quantity of a product that is for
sale at different prices
– Generally rises from left to right
– The higher the price, the higher amount available for
sale

Demand Curve – amount of a product that
people are willing to buy at different prices
– Generally falls from left to right
– The higher the price, the less the demand for the
product

Equilibrium Point – point at which supply and
demand meet
Do a Google Search for:
graph of supply and demand curve with
equilibrium