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Unit II (A) Supply + Demand I) Demand Law of Demand – a rise in price leads to a fall in quantity demanded. ( P = D) ( P = D) Defined – quantity of a product wanted at each of its possible prices. Ex. Jars of Peanut Butter A) Factors that Affect Demand (Determinants) 1) Price of product 2) Tastes/Preferences of consumer 3) Changes in income (loss of job or new) 4) Prices of substitutes and compliments 5) Expectations and attitude toward product may change…. B) Examples of Factors Substitutes – Adirondack vs. Coke; Lays vs. Wise; Lee vs. Levi. Role of Generic Brands Compliments – Popcorn + Salt; Milk + Cereal; Pens + Paper Expectations that Change – Firestone Tires; Extra Strength Tylenol; Burger King Kid Toys; “New and Improved”; “Low Fat” II) Demand in Poland Identify ten items that are sufficiently demanded in the Poland area: Considerations 1) Demographics – the study of people, population breakdown, gender, race in a given area. 2) Location – “Location, Location…” 3) Economic Conditions – income, age, area growth, or lack there of 4) Market Saturation – the extent to which products are already offered in the area demanded… paper products, fast-food, pharmacy, funeral homes? III) Supply Law of Supply – A rise in price leads to an increase in quantity supplied. (A business’ point of view). ( P = S) ( P = S) Defined – the quantity of a good or service that producers will provide at each of its possible prices. A) Factors That Affect Supply Price of product Costs of Resources Technology – efficiency Prices of Substitutes/Compliments Seller’s Expectations for Profit Government Regulation Natural Events # of Sellers of that Product B) Examples of Factors (Supply) 1) Price – workers at a sparkplug plant go on strike…cost of cars goes up 2) Natural Events – Hurricane Katrina reduces available supply of natural gas. 3) Tech – New software will revolutionize digital camera business. Lithium Batteries 4) Gov’t Reg. – new gov’t tariffs raise prices of foreign made dvd players. 5) Substitutes – Hot dog scandal affects hamburger market. 6) Expectations – New Playstation IV is released. IV) Suppliers in Poland More than you may believe Please Identify at least 10 suppliers of goods and services in the Poland area: V) Supply and Demand Note: where the two curves intersect represents the “market” or “equilibrium” price of the product. The curves are always shifting. “Snapshot in time” VI) Elasticity of Supply/Demand A) Elasticity of Demand – the degree to which changes in price (P) causes a change in the amount demanded. 1) Demand for cars changes as price changes… Honda Accord - If price went from $24,000 to $29,000, demand would decrease. (Elastic) Or - If price of Homes went down after WWII as in Levittown, then demand would increase. (Elastic) Or - gasoline (Inelastic) B) Keys – Relative Need for Product, Cost of Product, Viability of a substitute. C) Examples: Oil? Gum? Doritos? TV? Milk? Couch? Washing Machine? In the space below, please draw an accurate sample for either the Honda/Car scenario, or the World War II Homes scenario: Samples: D) Elasticity of Supply – the degree that amount supplied changes as price changes. Ex. 1: Bread – easy to make, common resources, increasing or decreasing the supply is easy (Thus, it is elastic) Ex. 2: Cars – complex factors involved in production; high overall cost. Increasing or decreasing supply is tough. (Thus, inelastic) 1) Key – Costs of Production. Samples: SAMPLE In the space below, please draw an accurate sample for s product of your choosing (may not be related to samples already provided): Supply/Demand Quiz! Multiple Choice: Essentials of S+D Graphing: Demand, Supply, Shifts in Supply and Demand (Elasticity)