Economics LAP 11

Supply and Demand

Explain the nature of supply and demand.Explain the nature of supply and demand.

Explain factors that affect supply and demand.Explain factors that affect supply and demand.

Explain the nature of supply and demand.

New style of Nikes just came on the market. Selling for $150 a pair Customers lining up to buy them Stores running out so Nike

increases production Then, there are plenty of new

Nikes available.

The world of supply and demand What was “hot” yesterday is “not” today.

Impacts you as well as businesses

Goal is to match supply with demand so:

• You can buy all the shoes you want.

• Nike can sell all of the shoes it makes.

• Quantity of a good or service that consumers are ready to buy at a particular price at a particular time

Requirements forto exist

• No money, no demand

Consumers must be willing to exchange buying power.

• Buy one product instead of another

Consumers must have a desire for

a good or service.

Consumers must have the buying power to pay for the good or service.

A person might want a $5 espresso,

but only have $3.

A person who has $5 may prefer to buy a value meal.

Requirements forto exist

• Consumers usually buy more at lower prices, and less at higher prices.

Money has a lot to do with demand.

Law of demand states that the quantity of a good or service that consumers will buy varies inversely with the price of the good or service.

Quantity of a good or service that producers are able and willing to offer for sale at a specified price in a given period of time

Quantity of a good or service that producers are able and willing to offer for sale at a specified price in a given period of time

Law of supply states that the quantity of a good or service that will be offered for sale varies in direct relation to its selling price.

Law of supply states that the quantity of a good or service that will be offered for sale varies in direct relation to its selling price.

Money has a lot to do with supply. Money has a lot to do with supply.

High Price

HighSupply

The higher the price, the more producers will supply.

The higher the price, the more producers will supply.

The lower the price, the less producers will supply.

The lower the price, the less producers will supply.

Low Price

Low Supply

Law of supply and demand states that the supply of a good or service will increase when the demand is great and decrease when demand is low.

Laws of togetherand

High Demand

Supply Increases

Supply Increases

Low Demand

Supply Decreases

Goal is to achieve equilibrium—the point at which the quantity supplied equals the quantity demanded

Buyer’s market

Price is low because there is a large supply and a small demand.

Best time for consumers to buy

Buyer’s Market

Large Supply

Small Demand

Lower Prices

Seller’s market

Prices are high because quantity demanded is much greater than quantity supplied.

Best time for producers to sell

Seller’sMarket

Small Supply

Large Demand

Higher Prices

Elastic demand—demand changes when prices change.

Elastic demand—demand changes when prices change.

• Usually affects luxury items or extras

• Usually affects luxury items or extras

Inelastic demand—demand remains constant even if prices change.

Inelastic demand—demand remains constant even if prices change.

• Usually for necessities needed to survive

• Usually for necessities needed to survive

Explain factors that affect supply and demand.

Explain factors that affect supply and demand.

UtilityUtility

• Usefulness to a potential consumer

• Usefulness to a potential consumer

• Often depends on age,

gender, occupation, education, income

• Often depends on age,

gender, occupation, education, income

• External influences have an impact.

• External influences have an impact.

Car insurance

Gasoline

Buying PowerBuying Power

• Amount of money available• Amount of money available

Price of other goodsPrice of other goods

• Substitute products: satisfy the same needs

• Substitute products: satisfy the same needs

• Complementary products:are used together

• Complementary products:are used together

Ski lift ticketsSki lift tickets

Consumers

• Standard of living• Standard of living

• Number of people in certain groups

• Number of people in certain groups

• Expectations• Expectations

Cost of production

High costs, less production

Decreased costs, more production

Number of producers

More producers equals more supply.

Future prices

Sellers might keep products off the market to wait for higher prices.

Disasters and emergencies

Often reduce supply and increase prices

Government

Rules, regulations, taxes may reduce supply.

Technology

Leads to lower production costs and more supply

Eliminated some products

Consider all of the products that are available to buy.

Why do you buy certain brands of necessities?

Why do you buy luxury items?

What is the difference?

Weather service predicts a blizzard.• Great demand for a limited amount of supplies

• Only grocery store in one small town increases prices

• Ethical to raise prices in all situations?

AcknowledgmentsAcknowledgments

Original Developers:Original Developers:

Lelia Ventling and Lynn Malowney, MarkED

Lelia Ventling and Lynn Malowney, MarkED

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Copyright 2008Copyright 2008

MarkED Resource CenterMarkED Resource Center

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