• Demand: a schedule showing the quantities of a good or service consumers are willing and able to purchase at various prices during a time period and ceterus paribus

Price

Quantity demande

d

• Demand curve—a graphic representation of the schedule, (all graphs must always be labeled) prices on right axis, quantity on horizontal axis• The graph represents the

Law of Demand: quantity demanded of a product is negatively related to its price as the curve slopes downward because• Income effect-when prices

are lower, consumers purchase larger quantities

• Substitute effect-as price goes up, consumers will find substitutes, thus demand goes down

• Preferences- “how well you like one product compared to another”

• Expectation-of prices rising in the future the curve shifts to right, if prices are lowered curve shifts to left

• Number of consumers in market-more consumers in the market causes curve to shift right, less consumers, left

• Tastes-same as preferences• Income-a change in income will

cause one curve to shift one direction, and another curve to shift in another

• Price of related goods-substitute goods: products used in place of other products; complimentary goods: products purchased along with other goods

• Opportunity Costs

The Curve assumes constants and a change on the curve is a change in the quantity demanded, but changes in demand will shift the curve right or left

• (foreign beef market) outbreak of mad cow disease causes a ban on imported beef; (local beef market) same scenario

• (Coke and Pepsi) Pepsi raises prices

• (gas) OPEC increase oil production

• (Ford) government forces auto makers to meet new emissions standards

• (Burger King burgers) Burger King lowers the price of fries

• (Nike shoes) begin advertising campaign aimed toward women

• (Levi’s jeans) Levi’s raises prices 20%

• (Orange juice) Hurricanes in Florida destroy orange crops

• A schedule showing the quantity of goods and services producers are willing and able to supply

Quantity

Supplied

Price

• Supply curve—a graphic representation of the schedule, (all graphs must always be labeled) prices on right axis, quantity on horizontal axis• The graph represents the

Law of Supply: quantity supplied of a product is positively related to its price as the curve slopes upward because it allows producers to recover their costs

• Technology-influences the types of machines we use, so a technological advance changes the curve because it uses fewer resources

• Sellers-number of producers in the market, more producers the greater supply so curve shifts to the right

• Taxes and subsidies-taxes are costs to businesses and reduce supply, subsidies are income and allow producers to increase supply

• Other goods made from resources-• Resource Prices-because the curve

assumes prices of resources remains unchanged, an increase in resource prices allow the curve to shift left or vice-versa

• Expectations of supplies in the future

Crossing the two curves will create an Equilibrium price and Equilibrium Quantity

Surplus: a situation in which quantity supplied is greater than quantity demanded

Shortage: a situation in which quantity demanded is greater than quantity supplied