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Ch. 21 – Supply and Demand
Demand
 Desire, willingness, and ability must all be present in the consumer for demand to exist
 Demand Schedule: a table that show the various quantities of a product or service that someone is willing to buy over a range
of possible prices
 Each point represents how much of a product a person will buy at a certain price
 Demand Curve – formed by connecting the points – always slopes downward (Demand = Down)
 Shows most people are willing to buy less of a product at a higher price and more at a low price
 Law of Demand
 Quantity demanded and price move in opposite directions
 P D
P
D
 Draw Demand Graph 
Market Demand
 Market Demand – total demand of all consumers for a product or service
o Example – Tobacco
 We buy products for their utility (pleasure, usefulness or satisfaction products give us) – it is different for everyone
o Example –
 Diminishing Marginal Utility
o Our additional satisfaction tends to go down as we consume more units
o Therefore we are willing to pay less for it as we use more of it
o Example – Pizza, Roller Coaster Rides
Factors Affecting Market Demand
1. Consumers entering or leaving the market (population changes)
• Why would population change?
2. Incomes, tastes or expectations change
• Real Income Effect – as more people have more money, they spend it – contributes to a healthy economy
• Normal Goods vs. Inferior Goods
• Tastes – Demand for VCRs declined as the taste for DVDs rose
• Expectations – if expected price of item will go down soon, Demand will go down today
3. Prices of related goods change
• Complements move in the same direction (Peanut Butter and Jelly) = P(Price)1
QD(Quantity Demand)1
D(Demand)2
• Substitutes move in opposite directions (Pepsi and Coke) P1
QD1
D2
Shifts in Market Demand
 If Market Demand rises, the demand curve will shift to the right
 If Market Demand drops, the demand curve will shift to the left (think less is left)
Elasticity of Demand
 Extent of change in price causes a change in demand
 Elastic products – demand changes by large amounts when the price is only slightly changed
 Inelastic products – demand changes by small amounts or does not change at all even if price changes drastically
 Products with substitutes or luxury items are more elastic
 Products with few or no substitutes are inelastic
Draw Graphs 
Supply
 Can be 1 supplier or total supply for a product
 Producers offer different quantities of a product depending on the price consumers are willing to pay
 Supply Schedule
o Quantities producers are willing to supply at various prices
 The supply schedule graphed shows the supply curve.
 Each point represents how much of a product a company will produce or supply at a certain price
 Supply Curve – formed by connecting the points – always slopes up (Up is in Supply)
 Shows most companies are willing to supply more of a product at a higher price and less at a lower price
 Law of Supply
o As price rises, quantity supplied rises
o
o
As price falls, quantity supplied falls
Quantity demanded and price move in same direction
o
P
o
Draw Supply Graph 
S
P
S
Profit Motive
 Higher prices mean higher profits for suppliers
 Higher profits mean suppliers are willing to produce more
 Price is the most significant influence on quantity supplied
Market Supply
 Market Supply – total supply for all providers of a good or services
 Law of Diminishing Return (Diminishing Marginal Benefit in book)
o as producers make more of a item it becomes less profitable till it hits a point where the supplier loses money.
o Example: Farmland and assembly line work
Factors Affecting Market Supply
1. Cost of Production Changes
• 4 factors of production (natural resources)
• Includes productivity (labor)
• Includes technology (entrepreneurship)
2. Government policies changes
• Tighter government regulations restrict supply
• Relaxed regulations lower the cost
• Higher taxes = higher cost
• Subsidies lower cost
3. Producers expectations change (as in expected price)
4. Price of other good produced by the same company
5. Change in the number of producers
Shifts in Market Supply
 If Market Supply rises, the supply curve will shift to the right
 If Market Supply drops, the supply curve will shift to the left (again less is left)
Elasticity of Supply
 How quantity supplied changes in response to changes in price
 Elastic product
o If quantity supplied changes a lot in response to a small price change
o Products made quickly with less investment & unskilled workers are elastic
 Inelastic product
o If quantity supplied changes little to price change
o Products that cannot be made quickly or are expensive tend to be inelastic
o Example –
Supply and Demand in the Market
 Markets bring buyers (demand) & sellers (supply) together
 These forces compete to establish price
o QD = QS
 Prices then affect economic decisions
Equilibrium Point
 The point where supply and demand meet in balance
 Neither a shortage nor surplus exists
 In Market economies, equilibrium points naturally occur
 Once a price is at equilibrium, it stays there until market supply or demand changes
Surplus and Shortages
 A surplus will be at the top of the curves
 A shortage will be at the bottom of the curves
 A surplus signals the price is too high
 A shortage signals the price is too low
Price Ceiling
 Government or group imposed limit on how high a price can get for a product
o Examples: Rent prices in NYC after WWII, Gas Prices
 Must be below Equilibrium Price to be effective
o Why?
 Causes Shortages in the Market – Draw Graph 
Price Floor
 Government or Group imposed limit on how low the price of an item can get
o Example: Minimum Wage, Agriculture
 Must be above Equilibrium Price to work
o Why?
 Causes Surplus in the Market – Draw Graph 
Ch. 21 – Supply and Demand
Demand
 ________________________________________________________________ must all be present in the consumer for
demand to exist


____________________________: a table that show the various quantities of a product or service that someone is willing to
buy over a range of possible prices
Each point represents how much of a product a person will buy at a certain price

Demand Curve – formed by connecting the points – __________________________________________________________
___________________________________________
 Shows most people are willing to _______________________ of a product at a higher price and more at a _______________
Law of Demand
 ____________________________________________________________________________________________________
 P D
P
D
 Draw Demand Graph 
Market Demand
 Market Demand – _________________ demand of _______________________________________ for a product or service
o Example – Tobacco
 We buy products for their ______________________________ (pleasure, usefulness or satisfaction products give us) – it is
different for everyone
o Example –
 Diminishing Marginal Utility
o
______________________________________________________________________________________________
___________________________________________________
o Therefore we are willing to __________________________________ for it as we use more of it
o Example –
Factors Affecting ___________________________________________________
1.
Consumers entering or leaving the market (______________________________________________________)
• Why would population change? Ex. -
2.
_______________________________________________________________________________________
•
___________________________________________________ – as more people have more money, they spend it –
contributes to a healthy economy
• Normal Goods vs. Inferior Goods – Ex. -
•
______________________ – Demand for VCRs declined as the taste for DVDs rose
•
Expectations – _________________________________________________________________________________
_____________________________________________________________________________________________
3.
Prices of related goods change
• Complements move in the _______________ direction (Peanut Butter and Jelly) = P(Price)1
Demand)1
QD(Quantity
D(Demand)2
• Substitutes move in ____________________ directions (Pepsi and Coke) P1
QD1
D2
Shifts in Market Demand
 If Market Demand _____________________, the demand curve will _____________________________________________

If Market Demand __________________, the demand curve will ___________________________________ (think
_______________________________)
Elasticity of Demand
 Extent of ____________________________________________ causes a change in demand

___________________________ products – demand changes by _______________________________ when the
______________________________________________________________________________________ Ex. -


_______________________________ products – demand changes by ___________________________________ or does not
change at all even if price changes drastically. Example Products with ____________________________________________________________________________ are more elastic
 Products with few or no substitutes are__________________________________________________
Draw Graphs 
Supply
 Can be 1 supplier or total supply for a product



Producers offer _________________________________________ of a product depending on the _____________________
consumers are willing to pay
Supply Schedule
o Quantities producers are willing to supply at ____________________________________________________
The supply schedule graphed shows the supply curve.
Each point represents how much of a product a company will produce or supply at a certain price

Supply Curve – formed by connecting the points – ___________________________________________________________

________________________________________________


Shows most companies are willing to supply _____________ of a product at a ________________________________ and
less at a lower price
Law of Supply
o As price rises, quantity supplied rises
o As price falls, quantity supplied falls
o Quantity demanded and price move in _____________________________________________________________
o
P
o
Draw Supply Graph 
S
P
S
Profit Motive
 Higher prices mean higher profits for suppliers
 Higher profits mean suppliers are willing to _____________________________________________________
 _______________________ is the most significant influence on _________________________________________________
Market Supply
 Market Supply – ________________________________________________ for all providers of a good or services
 Law of Diminishing Return (Diminishing Marginal Benefit in book)
o as producers make more of a item it becomes ___________________________________________________ till it
hits a point where the supplier loses money.
o Example:
Factors Affecting Market Supply
1. Cost of Production Changes
• 4 factors of production (______________________________________________________)
2.
• Includes ______________________________________________________________ (labor)
• Includes technology (entrepreneurship)
Government policies changes
•
__________________________________________________________________________________________
•
•
Relaxed regulations lower the cost
__________________________________________________________________________________________
•
____________________________________________ lower cost
3.
___________________________________________________________________________ (as in expected price)
4.
_________________________________________________________________ produced by the same company
5. Change in ____________________________________________________________________________
Shifts in Market Supply
 If Market Supply rises, the supply curve will _________________________________________________________
 If ______________________________________________________, the supply curve will shift to the left (again less is left)
Elasticity of Supply
 How quantity supplied changes in response to changes in price

_________________________________ product
o
o
If quantity supplied __________________________________________ in response to a small ____________
change
Products made quickly with _______________________________________________________________________
_________________________________________________________

___________________________________ product
o If quantity supplied changes little to price change
o Products that cannot be made quickly or are expensive tend to be inelastic
o Example –
Supply and Demand in the Market


_____________________________________________________________________________________________________
These forces compete to establish price
o _______________________________________
 Prices then affect economic decisions
Equilibrium Point
 _____________________________________________________________________________________________________
 Neither a _____________________________________________________________________________________________
 In Market economies, equilibrium points naturally occur
 Once a price is at equilibrium, it stays there until market supply or demand changes
Surplus and Shortages

____________________________________________________________________________________________________

____________________________________________________________________________________________________

A surplus signals the _____________________________________________________________________
 A shortage signals the ____________________________________________________________________
Price Ceiling
 _____________________________________________________________________________________________________
___________________________________________________________________

o Examples:
Must be below Equilibrium Price to be effective
o Why?

Causes ________________________________________ in the Market – Draw Graph 
Price Floor
 _____________________________________________________________________________________________________
o Example: Minimum Wage, Agriculture
 Must be above Equilibrium Price to work
o Why?
 Causes Surplus in the Market – Draw Graph 