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Supply and Demand

Supply and Demand - Global Economics
by

Daniel Kim

on 8 September 2014

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Transcript of Supply and Demand

Supply and Demand
Global Economics
It is
Friday, November 23rd 2012.
Where are you at 4:00am?
So as we all know, Economics

is the study of how

people and society use limited resources to fulfill their unlimited wants.
Now here's a question
?
So what's so special about the 23rd of November?
We all know that
NOTHING is free.
Any good or service we enjoy today came with a price.
This price can be affected by something we called

Supply and Demand
To start we'll talk about a
simple, yet powerful
economic concept called Demand
Demand
is the amount of a good or service that consumers are
willing
and
able
to buy at various
prices
What products do we know have extremely high demand?
How about low demand?
Justin Bieber T-shirts
How thirsty are you?
How many of you would be willing to purchase this can of Monster for $1.50
What if stores were charging $3.50 for the same can. Would that change your mind?
Finally what if you could get a can of Monster for $ .25, would that increase or decrease your willingness and ability to buy it?
Once again....
these economic decisions that are constantly changing depending on price and other elements is called Demand!
To begin:
Lebron James Jerseys
And?
And?
I hate him
Now Economists have studied this effect and have come up with some general rules. We call this the
Law of Demand
The Law of Demand states that the

quantity demanded and price of a good or service move in opposite directions
As the Price goes
The Demand goes
Even
Hollywood actors
don't have enough money to buy EVERYTHING they want to
In order to fulfill the wants and needs of ourselves and our family members,
we need to pay a certain price!
What else affects demand?
or, what else
other than the price
of a good or service will change our demand?
People's
incomes limit
the amount they are willing and able to spend.
This concept is known as the
Real Income Effect
If the price of a good or service
increased
, while your income
stays the same
, you wouldn't be able to afford the same quantity of the good!
Substitution Effect
Rule stating that if two items satisfy the same need and the price of one rises people will buy more of the other
How much are you willing to pay for the first bar?
And the Second?
And the Third?
Fourth? Fifth?
This is the
law of Diminishing Marginal Utility
or...
Satisfaction from purchasing a good or service will decrease with each additional purchase
Now on to supply
Now if we take a second look at Demand, we notice that we see things from the view of the

Consumer
.
We pay attention to whether or not the Consumer is
willing and able
to pay for a good or service at a particular price
Supply side economics deals with the
willingness and ability
of the
Producers
to provide goods and services at particular prices!
The
Law of Supply
states that price and quantity supplied
move in the same direction
If the price of a good or service goes
up
, the Supply will also
increase
. On the flip side, if the price of a good or service goes
down
, the price will also
decrease
.
Imagine you are an artist and often create and sell your paintings
As an artist how many of you would be willing to sell this painting for $40.00?
What if someone was willing to pay $100?
Someone is now offering you $500 for this painting. Would you be more or less likely to sell as the producer of this item?
So as

our old friend
Adam Smith
would say, the single largest incentive for suppliers to do anything is to make

a...
Suppliers will ALWAYS be driven to set the
highest possible price
for goods and services that consumers would be
willing and able to pay
!
As the Price goes
The Supply goes
Let's Practice
To begin let's create a
Supply Schedule
, or a table showing the quantities supplied at different possible prices
Price Per Painting
Quantity Supplied
Graph Point
A
B
C
D
E
1
3
5
7
10
$20
$30
$45
$60
$80
Price
of
Paintings
($)
Quantity Supplied
20
40
60
80
100
1
3
5
7
9
A
B
C
D
E
As an artist supplying paintings, let's look at a demand schedule and the resulting graph
Full transcript