Download Law of Demand

Attempt to answer these
questions to the best of your
ability. .
a. Why are diamonds expensive?
b. Why do heart surgeons make more
money than teachers?
What is Scarcity?
• What are some
examples of scarcity
in society?
• Demand = ?
• Supply = ?
Is Demand always the same?
What is Demand?
• Demand:
– the quantities of a
product that people
are willing and able to
purchase at a given
price
Price
Demand
$0.25
4
$0.75
2
$1
1
$2
0.5
Law of Demand: states that as price
decreases or increases, quantity demanded
does the opposite.
Law of Demand
• Change in quantity
demanded
– Represented by
movement along the
demand curve.
– Only reason demand
is changing is because
price is increasing or
decreasing.
• Utility: amount of
satisfaction received
from consuming a
good or service.
• What are the most
satisfying goods to
buy?
• law of diminishing
marginal utility
describes how the
last item consumed
will be less satisfying
than the one before.
• This means that at
some point, no matter
how low the price is,
consumers will
purchase less.
What does this represent?
Shift (change) In Demand
• refers to an increase
(rightward change) or
decrease (leftward
change) in the
quantity demanded at
each possible price.
• Price is staying the
same but people are
demanding more or
less quantity.
Shift in Demand = new demand curve
Change in Quantity Demand = movement along curve
What does this graph represent?
How to get a “shift” in Demand?
• A Change in income:
– When income increases, consumers buy more. When
income decreases, consumers buy less. Example??
• A Change in taste:
– Fads, fashions, and the advertising of new products
influence consumer decisions.
– Examples??
• A Change in the price of a substitute good:
– A substitute good competes with another good for
consumer purchases. If the price of soda increases too
much, consumer may decide to drink juice instead.
– Examples??
How to get a Shift in Demand?
• A Change in the Number of Buyers:
– Population growth will increase the demand for
products because the pool of consumers has grown.
– Examples?? (Baby boom generation)
• A Change in buyer expectations
– If consumers think the price of a good will increase in
the future, they may decide to buy more of it now so
that they pay less.
– Examples??
How much is Demanded at each price?
What could have caused this shift?
Pop Quiz #2
1.)What is the law of supply?
2.) What causes a change in quantity demanded?
3.) Does a price ceiling create a shortage or surplus?
4.) What is the law of demand?
5.) Does a price floor keep price high or low?
6.) Which graph represents a change in Quantity
demanded?
7.) Is graph 4 graphing a price ceiling or floor?
8.) Which letter is demanded the most on graph 1?
9.) Which letter has a higher price on graph 2?
10.) List 1 things that could cause a shift in demand.
What is Supply?
• Supply: refers to the
quantities of a product
that producers are
willing and able to
offer at a given price.
• Producers make
decisions on how
much to supply based
on profitability.
Law of Supply
• Sellers will offer more of a good at a
higher price and less at a lower price.
• Change in Quantity supplied: change
in supply caused only by change in price.
• Results in movement along supply curve.
Change in Quantity supplied
Shift (Change) in Supply
• Price is staying the
same, but for some
reason supply is
going up or down.
Change (shift) in Supply = new supply curve
Change in Quantity supply=movement along the curve
How we get a shift in Supply?
• Change in technology:
– Produce more at same price
• Change in production costs:
– Produce more at same price
• Change in the number of sellers:
– Increase or decrease in supply.
Equilibrium price
Price Floor
• Lowest legal price that can be paid for a
product.
• Keeps the price High!
• Examples:
– Min Wage, agricultural produce.
• Cause a surplus or shortage?
• Creates a surplus of goods.
Price Ceiling
• Maximum price that can be charged for a
product.
• Price Ceiling: Keeps the price low!
• Examples:`
– Section 8 housing,
• Cause a surplus or shortage?
• Creates a shortage of goods.
• Read chapter 6 section 3 and answer the
following questions. (use paragraph guidelines on board)
Paragraph Answers:
1.) Explain price ceilings and how they work
with examples.
2.) Explain price floors and how they work
with examples.
3.) Answer # 2 pg 158 under “Thinking
Critically”.
4.) Answer # 2 pg 159 under “Applying
economic concepts”
Pop Quiz 3
1. Does a price ceiling create a shortage or
surplus?
2. The only thing that causes a change in
quantity supplied is what?
3. What is the law of supply?
4. What is the law of demand?
Pop Quiz cont…
5.) Minimum wage
would be an example
of a price floor or
price ceiling?
6.) What is a possible
reason for why supply
changed from point a
to b?