Download Unit 4: Supply and Demand

UNIT 4: SUPPLY AND DEMAND
I. DEMAND
A. Amount of a good that is bought at a price
1. Ex. 100 IPods at $250 and 1000 sold at $75
B. Demand can be influenced by a variety of
variables
1. Price
2. Popularity
3. Novelty
4. Need
C. Demand is not to be confused with wants.
D. Demand can be seen on a demand curve
Price
$3
$2
$1
$0
E. Demand can be increased by an increase in
buying power
1. Buying power is the cost goes down so your
money buys more.
2. Example: You have $10. A gallon of gas goes
from $2 down to $1
F. Demand is also effected by Diminishing
Marginal Utility
1. Diminishing Marginal Utility is when each
unit consumed is less enjoyable
2. Ex. Eating 1 or 2 burger compared to eating
10 burgers
G. Market Demand
1. The demand of everyone in the market
2. Ex. The total number of slices of pizza that
your class wants to eat.
3. Each person’s demand varies within the
market demand
H. Price Elasticity of Demand
1. Measures how much the demand has
changed due to the change in price
2. Ex. For every $10 you raise the price of an
IPod, you lose 3 sales.
I. Changing the demand
1. Prices of complimentary goods
a. Complimentary goods are two goods that go
together (Ex. Peanut Butter and Jelly)
b. When the price of peanut butter goes up, the
demand for jelly and peanut butter both go down
2. Substitute goods- a good you buy instead of
another
a. If the price of a good goes up, the
demand for the substitute goes up
b. Ex. The price of Hefty Trash Bags goes up
so you buy the Target brand bag.
3. Seasons can change demand for goods
a. Ex. Sales of ice cream go up in the summer
4. Personal preferences or styles change
a. Ex. Bell-bottoms and Parachute pants were
once popular, now the demand is almost nonexistent for these things.
II. SUPPLY
A. Supply- the amount that producers are willing
to supply at a given price
1. The Law of Supply- the higher the price the
more suppliers will produce
B. Supply is predominantly affected by the price
and cost of production
C. Supply is illustrated by a Supply Curve
Price
$3
$2
$1
$0
D. Market Supply
1. The amount supplied by all of the suppliers
2. Each company supplies different amounts of
a product
E. Price Elasticity
1.How much the supply is affected by a price
change
2. Ex. 100 IPods at $50 or 1000 IPods at $100
F. How Supply is Affected
1. The price directly affects how much a
producer is willing to supply
a. If the price is too low, they won’t bother
2. New businesses increase the supply
a. Ex. Adding a new burger place increases
the amount of burgers
3. Cost of Production affects supply
a. If it cost too much they won’t make it
4. Demand directly affects the supply
a. The more people want, the more the
producers will make
III. SUPPLY AND DEMAND
A. Supply and Demand both affect each other
1. The goal is to get the Equilibrium price (Where
supply and demand intersect)
Price
$3
$2
$1
$0
B. How they interact
1. The higher the price- The more supplied
a. Which lowers the demand
b. This creates a surplus and there are
goods left over
2. The lower the price- the less supplied
a. There is a higher demand
b. This creates a shortage and there is not
enough to go around
IV. CONCLUSION
B. How does the Law of Supply and Demand
affect your everyday life?
1. Prices of the goods you buy
2. The amount of goods you buy
3. Can even affect the number of jobs