Download Ch. 2 Ppt: Demand and Supply

Chapter 2
Demand and Supply
GR. 12 ECONOMICS (CIA4U1)
M. NICHOLSON
Markets and Circular Flows
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Households / Consumers
Businesses
Factor / Resource Market
Product Market
The Role of Demand
What is Demand?
 Demand: the relationship between the
various possible prices of a product and
the quantities of that product
consumers are willing to purchase
 Quantity demanded: the amount of a
product consumers are willing to
purchase at each price
The Role of Demand
Law of Demand:
 Law of demand: states that there is an inverse
relationship between a product’s quantity demanded
and it price
 Demand schedule: a table that shows possible
combinations of prices and quantities demanded of a
product
 Demand curve: a graph that expresses possible
combinations of prices and quantities demanded of a
product
 Change in quantity demanded: the effect of a price
change on quantity demanded
The Role of Demand
Change in Demand:
 Market Demand: the sum of all consumers’
quantity demanded for product at each price
 Demand determinants: factors that can cause
an increase or decrease in a product’s
demand
 Increase in demand: an increase in the
quantity demanded of a product at all prices
 Decrease in demand: a decrease in the
quantity demanded of a product at all prices
Demand Determinants:
Consumer’s taste
Personal income
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Change in price of other products
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Normal goods: products whose demand changes directly
with income
Inferior goods: products whose demand changes inversely
with income
Substitute goods: products that can be consumed in place
of one another
Complementary goods: products that are consumed
together
Consumers expectation concerning price
Population increase/decrease
Price Elasticity of Demand:
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Price elasticity of demand: the responsiveness of a
product’s quantity demanded to a change in its price
Elastic demand: demand for which a % of change in
a product’s price causes a larger % change in Qd
Inelastic demand: demand for which % of change in
a product’s price causes a smaller % change in Qd
Perfectly elastic demand: demand for which a
product’s price remains constant regardless of Qd
Perfectly inelastic demand: demand for which a
product’s Qd remains constant regardless of price
Factors that affect price
elasticity of demand:
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Portion of consumer incomes
Access to substitutes
Necessities vs luxuries
Price Elasticity of Demand
+ Supply:
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Supply: the relationship between the various
possible prices of a product and the
quantities of the product that businesses are
willing to supply
Quantity supplied: the amount of a product
businesses are willing to supply at each price
Market supply: the sum of the producers’
quantities supplied at each price
The Law of Supply:
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Law of supply: states that there is a direct relationship between
a product’s quantity supplies and its price
Supply schedule: a table that shows possible combinations of
prices and quantities supplied of a product
Supply curve: a graph that expresses possible combinations of
prices and Qs
Change in quantity supplied: the effect of a price change on Qs
Supply determinants: factors that can cause an increase or
decrease a product’s supply
Increase in supply: an increase in the Qs of a product at all
prices
Decrease in supply: a decrease in the Qs of a product at all
prices
Supply Determinants:
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Change in cost of production
Increased productivity
Government subsides
Taxes
Change in # of producers in market
Climatic conditions
Price Elasticity of Supply:
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Price elasticity of supply: the responsiveness
of a product’s quantity supplied to a change
in price
Elastic supply: supply for which a % change
in a product’s price causes a larger % change
in Qs
Inelastic supply: supply for which a % change
in a product’s price causes a smaller %
change in Qs
Factors that Affect Supply
Elasticity:
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Immediate run: the production period during which none of the
resources required to make a product can be varied
Perfectly inelastic supply: supply for which a product’s Qs remains
constant regardless of price
Short run: the production period during which at least one of the
resources required to make a product cannot be varied
Long run: the production period during which all resource required to
make a product can be varied, and businesses may either enter or
leave the industry
Constant-cost industry: an industry that is not a major user of any
single resource
Increasing-cost industry: an industry that is a major user of at least
one resource
Perfectly elastic supply: supply for which a product’s price remains
constant regardless of Qs
Marginal Utility
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William Stanley Jevons: developed the
law of diminishing marginal utility
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As a consumer purchases more units of a
particular product in a give time period,
that consumer’s extra satisfaction from
each additional unit falls
MU/P1 = MU/P2
Elasticity
Demand / Supply
Elastic
Inelastic
Unitary
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