Download Introduction to Supply and Demand

• Demand: a schedule showing the quantities of a good or
service consumers are willing and able to purchase at various
prices during a time period and ceterus paribus
Price
Quantity
demanded
• Demand curve—a graphic
representation of the
schedule, (all graphs must
always be labeled) prices on
right axis, quantity on
horizontal axis
• The graph represents the Law
of Demand: quantity demanded
of a product is negatively
related to its price as the curve
slopes downward because
• Income effect-when prices are
lower, consumers purchase larger
quantities
• Substitute effect-as price goes
up, consumers will find substitutes,
thus demand goes down
• Preferences- “how well you like one product
•
The Curve assumes
constants and a change
on the curve is a change
in the quantity
demanded, but changes
in demand will shift the
curve right or left
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compared to another”
Expectation-of prices rising in the future the
curve shifts to right, if prices are lowered
curve shifts to left
Number of consumers in market-more
consumers in the market causes curve to
shift right, less consumers, left
Tastes-same as preferences
Income-a change in income will cause one
curve to shift one direction, and another
curve to shift in another
Price of related goods-substitute goods:
products used in place of other products;
complimentary goods: products purchased
along with other goods
Opportunity Costs
• (foreign beef market) outbreak of
mad cow disease causes a ban on
imported beef; (local beef market)
same scenario
• (Coke and Pepsi) Pepsi raises prices
• (gas) OPEC increase oil production
• (Ford) government forces auto
makers to meet new emissions
standards
• (Burger King burgers) Burger King
lowers the price of fries
• (Nike shoes) begin advertising
campaign aimed toward women
• (Levi’s jeans) Levi’s raises prices
20%
• (Orange juice) Hurricanes in Florida
destroy orange crops
• A schedule showing the quantity of goods and services
producers are willing and able to supply
Quantity
Supplied
Price
• Supply curve—a graphic
representation of the
schedule, (all graphs must
always be labeled) prices
on right axis, quantity on
horizontal axis
• The graph represents the Law
of Supply: quantity supplied
of a product is positively
related to its price as the
curve slopes upward because
it allows producers to recover
their costs
• Technology-influences the types of
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machines we use, so a technological
advance changes the curve because it
uses fewer resources
Sellers-number of producers in the
market, more producers the greater
supply so curve shifts to the right
Taxes and subsidies-taxes are costs to
businesses and reduce supply, subsidies
are income and allow producers to
increase supply
Other goods made from resourcesResource Prices-because the curve
assumes prices of resources remains
unchanged, an increase in resource
prices allow the curve to shift left or
vice-versa
Expectations of supplies in the future
Crossing the two curves
will create an
Equilibrium price and
Equilibrium Quantity
Surplus: a situation in which quantity supplied is greater than quantity demanded
Shortage: a situation in which quantity demanded is greater than quantity supplied