Download Demand Curve for Widgets

Economics with Financial Literacy
Ms. Curran
Demand, Supply, and Equilibrium
How are prices set?
Demand


In the U.S., the forces of supply and demand work together to set __________.
Demand is the __________, ________________, and __________ to buy a good or
service.
o Demand can be for one individual consumer or the total demand of all
consumers in the market (___________ demand).
Demand Schedule
 A demand schedule is a table that lists the various ________________ of a product or
service that someone is willing to buy over a range of possible prices.
Price per Widget ($)
Quantity Demanded of
Widget per day
2
4
6
8
10
$5
$4
$3
$2
$1
Demand Curve
 A demand schedule can be shown as ___________ on a graph.
o The graph lists prices (___) on the ______________ axis and quantities demanded
(_____) on the _________________ axis.
o Each point on the graph shows how many units of the product or service an
individual will buy at a particular price.
o The demand _________ is the _______ that connects these points.
o
Demand Curve for Widgets
Price per Widget
$6
$5
$4
$3
Demand Curve for
Widgets
$2
$1
$0
0
5
10
Quantity Demanded of Widgets
1
15
Law of Demand
 The demand curve slopes ___________.
o This shows that people are normally willing to buy _______ of a product at a
________ price and _______ at a ________ price.
o According to the law of demand, quantity demanded and price move in
______________ directions. (P QD, P QD) - ___________ relationship
Utility
 We buy products for their utility- the pleasure, usefulness, or satisfaction they give us.
Law of Marginal Utility
 Marginal Utility is the amount of satisfaction a consumer gets from each
________________ purchase of a product/use of a service (marginal in economics means
“additional”).
 Law of Diminishing Marginal Utility explains that each additional purchase of a product or
use of a service will be ______ satisfying than the previous purchase/use.


One reason the demand curve slopes downward is due to diminishing marginal utility
o The ____________________________________ says that our additional
satisfaction tends to go _________ as we consume more and more units.
To make a buying decision, we consider whether the satisfaction we expect to gain is worth
the money we must give up.
Factors That Change Demand
 Change in the quantity demanded due to a price change occurs __________ the demand
curve
 Demand Curves can also shift (move) in response to the following factors:
o Market size: changes in the number of ________________ (population)
o Expectations (of consumers): changes in what consumers expect to happen in
the __________
o Related goods: changes in the price of ________________ and
___________________
o Income: changes in consumers’ income – normal vs. inferior goods
o Taste (of consumers): changes in ____________ or popularity of product/
service
 ______________: factors that shift the demand curve
 Prices of related goods effect on demand
 Substitute goods a substitute is a product that can be used ________________ of
another.
o The price of the substitute good and demand for the other good are
____________ related
o For example, Coke Price
Pepsi Demand
2

Complementary goods a compliment is a good that goes _______ with another good.
o When goods are complements, there is an ___________ relationship between
the price of one and the demand for the other
o For example, Peanut Butter
Jam Demand

Changes in any of the factors other than price causes the demand curve to shift either:
o ____________ in Demand shifts to the ________ (Less demanded at each price)
OR
o ___________ in Demand shifts to the ________ (More demanded at each price)
Elasticity of Demand
 Elasticity of Demand describes how quantity demanded responds to ___________ in price.
 Demand is elastic if a rise in price results in a __________ _________ in demand and
demand is inelastic if a rise in price results in a ________ or ____ drop in demand.
Supply

Supply refers to the various quantities of a good or service that _____________ are willing
to ________ at all possible market prices.

Supply can refer to the output of ________ producer or to the total output of all producers
in the market (__________ supply).
Supply Schedule
 A supply schedule is a table that shows the _______________ producers are willing to
supply at various prices
Price per Widget
($)
$5
$4
$3
$2
$1
Quantity Supplied
of Widget per day
10
8
6
4
2
3
Supply Curve
 A supply _ can be shown as ______________ on a graph.
o The graph lists ___________ on the vertical axis and __________________ on the
horizontal axis.
o Each point on the graph shows how many units of the product or service a producer
(or group of producers) would be willing sell at a particular price.
o The supply curve is the line that connects these points.
Supply Curve for Widgets
Price per Widget
$6
$5
$4
$3
Supply Curve
$2
$1
$0
0
5
10
Quantity Supplied of Widgets
15
Law of Supply
 As the price for a good ________, the quantity supplied ________. As the price _______,
the quantity supplied _________. (P QS, P QS)
 The law of supply holds that producers will normally offer _________ for sale at
________________ and less at lower prices.


The reason the supply curve slopes upward is due to costs and ___________.
Producers purchase resources and use them to produce output.
o Producers will incur costs as they bid resources away from their alternative uses.

Businesses provide goods and services hoping to make a profit.
o ___________ is the money a business has left over after it covers its costs.
o Businesses try to sell at prices high enough to cover their costs with some profit left
over.
o The higher the price for a good, the more profit a business will make after paying the
cost for resources.

Changes in Supply
o Change in the quantity supplied due to a price change occurs __________ the
supply curve
4
Factors That Change Supply
 Supply Curves can also shift in response to the following factors:
o Technology: ________________ in production increase ability of firms to supply
o Input costs: _________ to purchase factors of production will influence business
decisions
o Number of sellers: how many ________ are in the market Subsidies and
o Government actions: government ____________ encourage production, while
_________ discourage production (___________ tax); regulations influence how
business make their products
o Labor productivity: the amount of ____________ a worker can make
o Expectations: businesses consider __________ prices and economic conditions

_____________: factors that shift the supply curve
Changes in Supply
 Changes in any of the factors other than price causes the supply curve to shift either:
o ____________ in Supply shifts to the ________ (Less supplied at each price)
OR
o ____________ in Supply shifts to the __________ (More supplied at each price)
Equilibrium: Supply and Demand at Work



Markets bring buyers and sellers together.
The forces of supply and demand work together in markets to establish _________.
In our economy, prices form the basis of economic decisions.
Supply and Demand Schedule
 Supply and Demand Schedule can be combined into one chart.
Surplus
 A ____________ is the amount by which the quantity supplied is _________ than the
quantity demanded.
o A surplus signals that the price is too _________.
o At that price, consumers will _______ buy all of the product that suppliers are
willing to supply.
o In a competitive market, a surplus will not last. Sellers will _________ their price
to sell their goods.
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Shortage
 A shortage is the amount by which the quantity demanded is __________ than the quantity
supplied
o A shortage signals that the price is too _________.
o At that price, suppliers will ________ supply all of the product that consumers are
willing to buy.
o In a competitive market, a shortage will not last. Sellers will ________ their price.



Equilibrium
When operating without restriction, our market economy ________________ shortages
and surpluses.
o Over time, a surplus forces the price _________ and a shortage forces the price
_____ until supply and demand are balanced.
o The point where they achieve balance is the ______________________. At this
price, ___________ a surplus nor a shortage exists.
Once the market price reaches equilibrium, it tends to ________ there until either supply or
demand changes.
o When that happens, a temporary surplus or shortage occurs until the price
adjusts to reach a new equilibrium price. – (________________)
Government Intervention

Price ________ – a minimum price consumers are required to pay for a good or service
o Leads to excess (extra) _________
o Minimum wage

Price _________ – a maximum price consumers may be required to pay for a good or
service
o Leads to excess ____________
o Rent control

_______________ – controlled distribution of a limited supply of a good or service
o WWII
Black Market – an ___________ market in which goods are traded at prices (or in

quantities) higher than those set by law
o Rationing most likely leads to this
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