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Objectives:
Describe supply and demand orally and with
graphs
Discuss how supply and demand affect
prices of products and services
EQ: How does supply and demand affect
prices?
Participating in a Market Economy (USA)
In a market economy, buyers and sellers use
the marketplace to make economic decisions.
Buying decisions are made by consumers—
including me and you, businesses and gov’t.
Participating in a market economy
The individual buying
decisions of
consumers (me and
you) have a
tremendous influence
on the market
economy.
consumer
A person who buys and
uses goods and services.
(we are all consumers)
Participating in a market economy
Producers pay close
attention to the needs
and activities of
consumers.
What is a producer?
How do they decide what
products to sell?
$$$$$$$$$$$$$$$
producer
Individuals and
organizations that
determine what products
and services will be
available for sale.
A bit confusing, eh?
If businesses can produce and sell whatever they
want at whatever price….
And we, as consumers, can buy whatever we want at
prices we want to spend….
Wouldn’t this be one big messed up system? How
could producers and consumers ever agree?
NO! That’s where the theory of Supply and Demand
comes to the rescue!
Consumers set demand
WE control demand!
If consumers don’t want
to buy a product, the
demand goes
Ex – New DVD in stores
demand
The quantity of a good or
service that consumers
are willing and able to buy.
Demand – think in terms of consumer
The higher the price (P) gets, the less we
(consumers) demand (D) a product; the
lower the price (P) gets for a product the
more we demand it
P
P
D
D
Figure 1-2
Supply, Demand, and Market Price*
Draw an example of this in your notes!
Demand curve is
always sloping
downward
Hint: Demand –
Down
Producers establish Supply
Understanding demand tells a business what type
and what quantity of products and services to
supply.
Duh. A good business obviously isn’t going to keep
producing a good/service that isn’t in demand
anymore.
Ex – silly bands will soon fade away like dust in the
wind (pretty much already have)
Consumers set demand
If a consumer wants a
product/service and is
willing to pay more
money for it….
Heck yeah! They are
going to supply it!
Ex – DVD’s again
supply
Refers to the quantity of a
good or service that
businesses are willing and
able to provide.
Figure 2.1
Supply, Demand, and Equilibrium
*Supply curve
is always
upward
sloping.
Hint: Supply –
SUP!
Supply and price – think in terms of a producer
If the price (P) for a produce is high, producers
will supply (S) more of it; the lower the price, the
less producers will supply it.
P
S
P
S
Determining Price – pg 25
Factors influencing Demand
– When we see a bunch of products that will
satisfy our want/need, demand is low
– When we can’t find a good substitute for a
product we want, demand is high
Determining Price – pg 25
Factors influencing Supply
– Supply of a product affects price
• Midwest had a drought, supply of corn is down
– Competition –
• How does it affect supply and prices?
– Natural disasters
• You think of an example
Determining Market Price
Supply, demand, and competition determine
the market price for a product or service.
Determining Market Price
Market price
The point where supply
and demand are equal
Figure 2.1
Supply, Demand, and Equilibrium
Demand
What’s this
called?
Market Price
Supply
1. The demand curve slopes which way?
Downward
1. The supply curve slopes which way?
Upward