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2.02 Supply and Demand
02.00 Understand Economics and Economic Systems
02.02 Interpret supply and demand graphs
Marketplace
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In a free market,
consumers determine
the demand of a
product.
Entrepreneurs see
the demand and
make more of the
product.
More supply causes
the price to decrease
as the demand is
fulfilled.
Supply Defined
How much of a good or service a
producer is willing and able to
produce at different prices.
 Supply is produced by the
businesses in hopes of making
money.
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Demand Defined
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An individual’s need or desire for a good
or service at a given price.
Individuals are willing to consume more
of product or service at a lower price.
When the demand is high, competitors
see opportunity in the market.
Supply and Demand Graphs
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People draw supply and demand graphs so
that they can easily see the relationship
between the supply and the demand.
A supply and demand graph is a visual
representation of supply and demand.
The graph shows changes in a product’s
demand or supply.
The graph can help predict the performance
of the product over time.
When Supply and Demand Meet
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The point at which the supply and demand
curve meet is known as the equilibrium
price and quantity.
When the price is above the equilibrium
price, fewer people are willing to buy—the
price is too high.
When the price is below equilibrium price,
many people are willing to buy a lot of the
product—the price is too low. Suppliers
may not be able to make enough money
to cover costs.
Equilibrium Price (Market Price)
Supply
Curve
Equilibrium/
Market Price
Demand
Curve
Prices tell businesses what to
produce
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The prices of goods and services dictate
what products are developed, made,
improved or modified.
When the price is high, demand falls and
businesses produce fewer goods.
When the price is low, demand rises and
businesses produce more goods to meet
the demand.
Competition is sparked
Sellers compete to make a profit
 If a person sees that they can meet a
need or a want, they enter the
marketplace
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They compete with other businesses
already meeting the need or want.
OR
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They make a new product and competition
follows when others enter the marketplace.
The Profit Motive
People and businesses enter the
marketplace in hopes of making a
profit (money).
 This “profit motive” encourages
people to enter the marketplace.
 This hope of making a profit is the
reward for people who take risks by
entering the marketplace.
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