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ECON-U4-L2 What is “Demand”? What is the “Law of Demand”? Why is the demand curve downward sloping? DEMAND Demand- the relationship between various prices and the quantities consumers are willing and able to buy during some time period, holding all other factors constant. Law of Demand- the inverse relationship between price and quantity demanded. For $500? For $200? For $100? For $50? For $20? LET’S GRAPH IT! On a demand graph, the price is always on the vertical axis and the quantity is always on the horizontal axis. * What does the demand curve look like? A demand curve ALWAYS is downward sloping because as the price goes down the quantity demanded goes up and as the price goes up the quantity demanded goes down. * REMEMBER- D is for Demand and for Downward!* ECON-U4-L4 What is “supply”? What is the “Law of Supply”? $8/hr $10/hr $12/hr $14/hr Wage rate (V) Hours of Labor (H) LET’S GRAPH IT! On a supply graph, the price is always on the vertical axis and the quantity is always on the horizontal axis. * What does the supply curve look like? A supply curve ALWAYS is upward sloping because a higher price will result in more quantity supplied. * REMEMBER- UP is in sUPply! * The Market Never Stands Still RIPEN and GRENT “Determinants of Supply and Demand” Determinants of Demand (Things that shift the entire line!) •R • • • • elated goods (Complements and Substitutes) Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases – income increases, demand increases; income decreases, demand Income decreases – preferences increase, demand increases; preferences decrease, Preferences demand decreases E xpectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases N umber of buyers – # of buyers increase, demand increases; # of buyers decrease, demand decreases Shifts in Demand 4.00 3.50 Demand price 3.00 2.50 A B 2.00 1.50 C D 1.00 E F 0.50 D1 D2 0.00 10 20 30 40 50 60 70 Quantity of pecans per day 80 IRDL the Turtle!!!! Increase Right, Decrease Left Pecan Article • http://online.wsj.com/news/articles/SB10001 424052748704076804576180774248237738 Pecan statements 1. Lunar New Year, Chinese love Pecans on New year 2. Corn syrup, used with pecans to make pecan pie, has risen in price 3. Price of walnuts increases 4. Household income increases in China 5. Price of pecans drops 6. US trade agreements allow for more pecans to be sold in more countries 7. Pecan prices expected to be higher next year 8. Famous celebrities seen eating pecans at award ceremonies Determinants of Supply (from Cannon) • G overnment decisions TAXES – taxes increase, supply decreases; taxes decrease, supply increases SUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply decreases REGULATIONS – regulations increase, supply decreases; regulations decrease, supply increases • R esource prices or availability - • E xpectations – expect to sell more, supply increases; expect to sell less, •resource prices have an inverse relationship with supply •resource availability has a direct relationship with supply supply decreases; expect to sell at future higher prices, immediate supply decreases. • N umber of producers – direct relationship to supply • T echnology or training – direct relationship to supply Shifts in Supply 4 3.5 S1 Supply price 3 S2 2.5 A 2 B 1.5 C 1 D E 0.5 F 0 10 20 30 40 50 60 Quantity of pecans per day 70 80 Pecan Statements (supply) 1. US farmers cutting down pecan groves to make way for more profitable crops 2. Price of pecan-shelling machines rises greatly 3. Price of pecans falls as consumers prefer hazelnuts* 4. Scientists successfully produce genetically modified pecan trees that can produce twice as much as a normal tree 5. Engineers develop machines that “shake” the nuts out of trees 6. US gov’t provides subsidies to pecan growers 7. A flood destroys pecan groves in Georgia 8. Pecan producers expect lower pecan prices due to declining demand for nuts Shifter’s Practice (on the back of guided notes)