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Supply and Demand 101 A basic supply and demand curve • The vertical axis is PRICE • The horizontal axis is QUANTITY • The Demand curve slopes down and to the right • The supply curve slopes up and to the right A basic supply and demand curve Law of Demand • The price goes up demand goes down • The price goes down demand goes up • Price and demand have an inverse relationship Change in quantity demanded • All this means, is there is a price change • All the movement is along the existing demand curve Change in quantity demanded Change in demand • All this means, is a variable has been introduced • The old demand curve no longer applies and we have to draw a new one Change in demand Demand Increase Demand Decrease Examples of variables in demand Population increase Population increase Kroger • More people in Sunbury means more grocery sales • Kroger comes here Income Income • As more people lose jobs, their ability to buy things declines Tastes and preferences Tastes and preferences Short Shorts • The demand for short basketball shorts could not be lower Substitution effect Substitution Effect Burger King • 2 similar products • The price of one changes, it will effect the demand for the other • The graph to the right represents the demand for Burger King after McDonalds raised prices Complimentary good Complimentary good Jelly • 2 products that go together like PBJ • The graph represents the demand for jelly if the price of peanut butter goes up Law of supply • The price goes up supply goes up • The price goes down supply goes down • Supply and price have a direct relationship • They move in the same direction Law of supply we all have our price Change in quantity supplied • All this means, is there is a price change • All the movement is along the existing supply curve Change in quantity supplied Change in Supply • All this means, is a variable has been introduced • The old supply curve no longer applies and we have to draw a new one Change in supply Increase in Supply Decrease in Supply Examples of variables in supply Price of inputs Price of inputs Supply of anything that must transport a product • Inputs are raw materials used in production • When they increase, firms cannot supply as many products at any given price • The graph shows the negative effects of higher gas prices Technology improvement Technology improvement Supply of Books • Improvements in technology improves productivity • The kindle makes it cheaper to produce books • The graph shows the positive effect Taxes government regulations Taxes government regulations Auto Industry • Government regulations may protect the consumer, but they make it more expensive to produce things • The graph shows the effect of forcing the auto industry to include air bags