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BBI2O
Introduction to Business
Intro to Supply and Demand
Economic Resources (factors of production)
Definition: Resources needed to provide goods/services to consumers
Natural Resources: raw materials that come from the earth, water and
air. (e.g. soil, iron ore, gold, oil, trees, wildlife, agricultural products, fish,
oxygen)
Human Resources
the people who work to create the goods and
services (e.g. farmers, factory workers,
construction workers, website designers,
teachers, nurses, pilots)
Capital Resources: resources that last for a long period of time and
require investment on the part of the business (e.g. buildings,
equipment, tools, trucks and factories)
Scarcity: The basic economic problem
People have unlimited wants.
At the same time, the world has limited resources.
Society has to decide HOW to use these limited
(scarce) resources. Available resources include:
 Natural resources
 Human resources
 Capital resources
3
Economic Resources


In most cases, it takes a combination of all 3 economic
resources to create the goods and services that businesses
provide
What happens if there is not enough of an economic
resource? (i.e. Oil)


The price of the good/service increase
Alternatives must be found for the resource
Demand and Supply


I am selling my I-Pod
 Who would like to buy it?
 What will you pay for it?
Demand:
 the quantity of goods or service that
consumers are willing and able to buy at a
particular price.
Demand and Supply

Law of Demand
 Usually consumers will increase the demand
of a good or service as price decreases (which
goods might this not apply to?)
 Demand↑ as
Price↓
What Creates Demand?
1. Consumer is aware of or interested in the good or
service (business do this by advertising)
2. Ample supply of the good/service
3. Price is reasonable and competitive
4. The good/service must be accessible.
What Affects Demand?
1.
2.
3.
4.
5.
Price
The price of substitute or complementary goods
Change in consumers’ income (increase in income
usually means more goods/services are purchased,
however it could mean less)
Change in consumers’ tastes (why don’t people buy neon
pink headbands anymore?)
Changes in what we expect in the future (e.g. if we think
the price will decrease, we’ll wait to buy)
Discussion Questions
2012 – Electronic Trends
1. Think of the things that you and your friends buy or would like to buy.

What products are in high demand among your age group?

Why are they in demand?

Think of examples from the
 Fast food industry…
 Entertainment industry…
 Travel industry…
 Automotive industry…
 Recreation/sports industry…
2. Explain how a change in prices of related (complementary) goods affects
demand?
Supply


Definition: the quantity of a good
or service that businesses are
willing and able to provide within a
range of prices that people would
be willing to pay
P
Law of Supply: ↑S as ↑P
C

Usually as prices increase,
producers will increase the
quantity of goods they provide
R
I
E
Quantity Supplied
Conditions that Affect Supply

A change in the number of producers (more producers
increases the supply of goods and usually decreases
the price)

Eg. Sony sold the first CD Player in 1982 for a retail price of over $900.
How much are they now?
Conditions that Affect Supply






Price of related goods (if gas prices increase, people may buy
more energy efficient cars)
Change in Price (If price decreases, production may too)
Change in technology (VCR sales vs. DVD sales)
Change in expectations
Change in cost of production (if you provide a lawn cutting
service and the price of mowers increases – continue only if you
can charge more!)
Environmental factors
‘The Free Market’
We live in a society where producers (and
entrepreneurs) are allowed to supply goods
and services that people demand.
 Prices are determined by the forces of
supply and demand
 Supply – represents what producers are
willing to supply
 Demand – represents the needs and wants
of consumers
Law of Demand
Demand is the quantity of a good or
service that consumers are willing and
able to buy at a particular price.
Law of demand:
 When prices decrease 
consumers buy more and
demand goes up 
 When prices increase 
consumers buy less and demand
goes down 
14
Group Activity
 In your group, create a list with pictures showing
‘Factors that Affect Demand’
 E.g.
1. Weather/seasons
2. Holidays
3. Price of the good
4. Price of substitutes.
5. Price of complementary goods.



Cars and fuel
Shaving Cream and Razors
Pencils and erasers
6. Consumer’s income
7. Consumer’s taste of goods (Fads & Trends)
8. Expectation about future prices
9. Advertising
10. Economy
12 factors that affect demand
for goods and services:
1.
Weather/Seasons
2.
Holidays
3.
Price of the good
4.
Price of substitutes
5.
Price of complementary goods
6.
Consumer's income
7.
Consumer's taste for the good (fads & trends)
8.
Consumer's expectations about future prices
9.
Advertising
10. Economy (e.g. recession = less demand)
DEMAND
3500
PRICE
3000
2500
2000
1500
1000
500
D
0
1
2
3
QUANTITY
4
5
SUPPLY
3000
PRICE
2500
S
2000
1500
1000
500
0
1
2
3
QUANTITY
4
5
EQUILIBRIUM POINT
-
OCCURS WHEN SUPPLY MEETS DEMAND
EQUILIBRIUM
PRICE
3500
3000
2500
2000
1500
1000
500
0
1
2
3
QUANTITY
4
5
Application – Select a product from the list below:




What is its current price?
List the names of two similar products and note
their current prices
What was the price of your selected product last
year at this time?
Explain why the price has or has not changed over
that period of time.
Fast food hamburger, price or gas, price of
bacon, litre of milk