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Supply & Demand
Chapter 2
Demand

Desire, willingness & ability to buy a product

Must
Want to buy a product
 Be able to pay for the product

Law of Demand

Amount of a good or service consumers are
willing & able to buy at different prices

Price low, more people will buy a product

Price high, less people will buy a product
Law of Demand Curve
5 10 15 20 25 30 35
- Goods or
Services sold at a
certain price
- Line on graph is
Demand Curve
- Label D-1
- Always have
price & quantity
0
Price per T-shirt (dollars)
Carl’s Custom T-Shirts
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
- Curve goes down
left to right
Demand Shifts
5 10 15 20 25 30 35
D-1
D-2
0
Price per T-shirt (dollars)
Demand Curve Shift to Right
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Demand Shifts
5 10 15 20 25 30 35
D-1
D-2
0
Price per T-shirt (dollars)
Demand Curve Shift to Left
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Demand Shifts
5 10 15 20 25 30 35
D-1
D-2
D-3
0
Price per T-shirt (dollars)
Demand Curve Shift
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Demand Schedule

A Chart

Shows amount of a product that people will buy
at that price.

Types
Individual
 Market

Individual Demand Schedule

Demand of only one
consumer
Price
Quantity
Demanded
$45
0
$30
0
$25
1
$15
3
$10
6
$3
10
Market Demand Schedule
Price
Quantity
Demanded

$45
50

$30
50

$25
100
$15
300
$10
600
$3
1000

Demand of Everyone
Businesses use this chart
Predict how much to
make for what price
Decide quantity of good
at a specific price
Changes in Demand

Income

Consumer likes & dislikes

Substitute good & services

Complementary goods
Income

Money a person makes

Increase in income – buy more

Decrease in income – buy less
Likes & Dislikes

Tastes change

Technology changes

Popularity
Substitute Goods or Services

Good or service that can take place of another

Interchangeable goods


Price of one substitute will affect the demand for
another
Ex:
Margarine for butter
 Powdered milk for fresh milk

Complementary Goods

Goods or services that are used together

EX:



Peanut Butter & Jelly
DVD’s & DVD player
If price of jelly goes up price of peanut butter may go
down

Why????
Supply
The amount of a good
that is available to buy
Law of Supply

Price of a good or service rises, producer will be
willing & able to supply more

Price of a good is higher, a larger quantity of
the good will be produced

Price of good is lower, a smaller quantity of
good will be produced
Law of Supply Curve
5 10 15 20 25 30 35
- Goods or
Services sold at a
certain price
- Line on graph is
Supply Curve
- Label S-1
- Always have
price & quantity
0
Price per T-shirt (dollars)
Carl’s Custom T-Shirts
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
-Curve goes up left
to right
Supply Shift
5 10 15 20 25 30 35
- S-1
- S-2
0
Price per T-shirt (dollars)
Supply Curve Shift to Right
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Law of Supply Curve
5 10 15 20 25 30 35
- S-1
- S-2
0
Price per T-shirt (dollars)
Supply Shift to Left
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Law of Supply Curve
5 10 15 20 25 30 35
-
S-1
- S-2
- S-3
0
Price per T-shirt (dollars)
Supply Shift
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Supply Schedule

Lists quantity of a good that a company will
supply at different prices

Types
Individual
 Market

Individual Supply Schedule
Shows supply of
ONE company
Price
Quantity
Supplied
$25
8
$20
7
$18
6
$15
4
$10
2
$5
0
Market Supply
Price
Quantity
Supplied
$25
100
$20
95
$18
85
$15
72
$10
50
$5
34
- Lists quantity of a good that ALL
companies will supply at different
prices
- Have larger numbers of
quantities supplied
Changes in Supply





Income
Likes & Dislikes
Cost of Production
Technology
Opportunity Cost
Cost of Production

Cost of things

Natural Resource, capital & labor

Increase in Cost of production, decrease in
quantity supplied
Technology

Speeds up production

More efficient

Less costs
Opportunity Cost


Use resources to create different products for
more money
EX:
Make custom hats instead of T-shirts
 Make more profit


Increase supply of hats, decreased supply of TShirts
Prices

Value of a product

Based on Supply & demand of a product

Quantity demanded equals quantity supplied

Producers willing to sell at a price consumers are willing
buy
Equilibrium Price

5 10 15 20 25 30 35
0

Price at which
the amount
demanded
equals the
amount
supplied
D-1
S-1
Price per T-shirt (dollars)

Supply & Demand for Carl’s T-Shirts
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Surplus
5 10 15 20 25 30 35

Sell above
Equilibrium
price, not
enough
buyers

Surplus –
more goods
than buyers
surplus
0
Price per T-shirt (dollars)
Supply & Demand for Carl’s T-Shirts
0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Shortage
5 10 15 20 25 30 35
Shortage –
more buyers
than goods
Supply & Demand for Carl’s T-Shirts
Shortage
0

Sell below
Equilibrium
price, not
enough
product
Price per T-shirt (dollars)

0 5
10 15 20 25
30
35
40
Number of T-shirts bought per semester
45
Market Structures
Classification of a market based on the type
and amount of competition among
companies
Market Structures

Types
Perfect competition
 Monopolistic competition
 Oligopoly
 Monopoly

Perfect Competition

Simplest market structure

Large number of companies all produce an
identical product & sell it for the same price
Conditions for Perfect Competition

Market made up of many buyers & sellers

Sellers sell identical products

Buyers and sellers know a lot about the products

Buyers & sellers can enter & leave the market
freely
Perfect Competition

Barriers
 Start up Costs
 Money paid before product reaches
consumer
 Technology
 Spend a lot of time learning new
technology
Monopoly





Opposite of Perfect competition
A single supplier controls a market
Only supplier in the market
Consumers are forced to pay price set by
company
EX:
City Water
 Electric company

Monopolistic Competition




Like Perfect competition except products are
not identical
Products are made just a little different
Want consumers to know the difference
between the products
EX:
Levi’s & Wrangler
 Pens
 Nike & Addias

Oligopoly





Very large suppliers control the market
One company acts, others will follow
Compete through advertising
Company lowers prices, others will lower price
EX:
McDonalds, Burger King & Wendy’s
 Coca-Cola & Pepsi
 Northwest & American Airline
