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Supply and Demand

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by

Zack McCoy

on 24 October 2016

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Transcript of Supply and Demand

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Sup~ply
Demand
Supply
The quantities sellers are willing and able to produce or sell at various prices. The amount of good that is available to buy.
De~mand
Buyers/Consumers = DEMAND
Sellers/Producers = SUPPLY

Supply Schedule (Hamburgers)
Price
$ 8
$ 6
$ 5
$ 4
$ 3
$ 2
$ 1
Quantity
20
17
14
12
8
5
2
Price
10
8
6
4
2
2 6 8 12 16 20 Quantity
Supply Curve
Supply and demand (a market) exists because we have Voluntary Exchange>>>>>
Shif
T
ers
Government
R
egulations
Input
C
osts
As the Price goes up the Quantity Supplied goes up.
Two types of changes to the supply:
A change in Quantity Supplied:

A change in price

This would be a simple movement along the curve.
Quantity of Supply Change
Price
Quantity
P2
P1
Q1
Q2
An increase in Price results in an increase in Quantity Supplied
P
S
A change in supply:

The actual supply curve will shift because there has been a change in supply
Price
Quantity
Change in Supply (shift of the curve)
There is a different quantity supplied at every Price
S1
S2
C
O
S

E
R
Price of
O
ther goods that
could be produced
# of
S
ellers
T
echnology
E
xpectations
C
osts
O
ther goods
S
ellers
T
echnology
E
xpectations
R
egulations
Subsidy
Monetary assistance granted by the government to a person or a group in support of an enterprise regarded as being in the public's interest

Taxes, tariffs and laws
Shift
E
rs

C
R
I
M

Demand:

the q
uantities people are willing and able to
purchase

at va
rious prices
Demand Schedule (Hamburgers)
Price
$ 8
$ 6
$ 5
$ 4
$ 3
$ 2
$ 1
Quantity
2
5
8
12
14
17
20
2 6 8 12 16 20 Quantity
Demand Curve
Price
10
8
6
4
2
Price
10
8
6
4
2
Law of Demand:
As Price goes up, Quantity Demanded goes down.
Why does a demand curve slope
DOWNWARD
???
Substitution
Real Income
Effect
2 Reasons:
Substitution Effect:

Buyers will substitute a lower priced good or service for a similar higher priced good or service.
Real income Effect:

The greater the price, the less your income can buy
Economic Utility:

the amount of satisfaction that you receive from a good or service. The power a good or service has to satisfy a want.
Law of Diminishing Marginal Utility:

the amount of additional satisfaction a consumer receives diminishes with each additional unit
Two types of changes to the demand:
A change in Quantity Demanded:

A change in price

This would be a simple movement along the curve.
Price
Quantity
P2
P1
Q1
Q2
An increase in Price results in an decrease in Quantity Demanded
P
D
A change in demand:

The actual demand curve will shift because there has been a change in demand
Price
Quantity
Change in Demand (shift of the curve)
There is a different quantity demanded at every price
D1
D2
C
onsumer Tastes
trends and fashions that are highly desirable to the consumer.
Price of
R
elated Goods
Complementary Goods: A product often times used with other goods
Substitute Goods: If two items satisfy the same needs, and the price of one good rises, then people will buy more of the lower priced items.
If the price of one item drops, then people will buy more of that product. The other items that goes with it will increase in sales because when you buy the one item, you usually buy the other.
I
ncome
Inferior Goods: consumption decreases when the available income increases. For example, used books and instant noodles: the more income you have the less used books and instant noodles you buy.
Normal (superior) good is the most common type of good or service. A good or service is normal when its consumption increases with an increase in income. Example: clothes, when your income increases you will buy more clothes.
Marginal Utility:

The additional amount of satisfaction from the same product.
M
arket Size
# of buyers in the market
More buyers in the market leads to an increase in demand
Fewer buyers in the market leads to a decrease in demand
E
xpectations
C
onsumer tastes
Price of

R
elated goods
I
ncome
M
arket size
E
xpectations
Economic Value:

the worth of a good or service as determined by the market
Could also be negative publicity...
Left is less!
Positive promotion of a good or service
Left is LESS!!
Market Demand:
The sum of the individuals' demands in a given market
Consumers sometimes predict that the price or the availability of a product is likely to change in the future
Technological improvements help reduce production cost and increase profit, thus stimulate higher supply
If producers expect future price to be higher, they will try to hold on to their inventories and offer the products to the buyers in the future, thus they can capture the higher price.
The producer also has to pay for other resources such as raw materials, machinery and labor. If his or her money is short on supplying a certain number of products because of an increase in his or her input costs, supply will decrease.
A producer may produce more than one product.
However, a producer's money is limited and if they increases their supply for one product, then they would have to decrease their supply for the other product(s).
As we see more and more firms enter the market, more and more of the good in question gets produced.
So an increase in the number of firms gives us an increase in supply, while a decrease in the number of firms gives us a decrease in supply.
Surplus
Shortage
When there is not enough supply of a product that consumers want to buy

Producer is more willing to produce a good or service than the consumers are willing to buy
Elasticity of Demand
Consumer’s responsiveness to an increase or decrease in the price of the product.

Elastic Demand
~These are items a person CAN live without.
~Have many substitutes
~Demand for an elastic good is widely based on price and NOT necessity
(if the price changes people are likely to react quickly)

Inelastic Demand
~The product’s price has little to do with the amount that is demanded.
~These inelastic goods are considered necessities that consumers really need.
~Examples: medicines, natural gas, electricity, insulin

Examples: basic wants...toys, clothing
Price Elasticity of Demand
Price elasticity of demand
is the percentage change in quantity demanded given a percent change in the price.
It is a measure of how much the quantity demanded of a good responds to a change in the price of that good.

Computing the Price Elasticity of Demand
The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price.

Price Elasticity of Demand = Percentage Change in Qd
---------------------------------
Percentage Change in Price


A chart that illustrates the various quantities people are willing to purchase at various prices
Elasticity of Supply:
Responsiveness of producers to changes in the price of their goods or services.
If supply is elastic, producers can increase output without a rise in costs and marginal costs or a time delay.
The supply for T-shirts is considered to be extremely elastic. It is easy to increase and decrease production. (Think Super Bowl)
If supply is inelastic, firms find it hard to change production in a given time period and with low marginal costs.
an oil refinery cannot easily switch its production capacity over to another product; nor can you produce more than is being given. Or better yet think of electricity!
Full transcript