Supply and Demand Supply and Demand 101101

A basic supply and A basic supply and demand curvedemand curve

•The vertical axis is The vertical axis is PRICEPRICE

•The horizontal axis is The horizontal axis is QUANTITYQUANTITY

•The Demand curve slopes The Demand curve slopes downdown and to the rightand to the right

•The supply curve slopes The supply curve slopes upup and and to the rightto the right

A basic supply and A basic supply and demand curvedemand curve

Law of DemandLaw of Demand

• The price goes The price goes up demand up demand goes downgoes down

• The price goes The price goes down demand down demand goes upgoes up

• Price and Price and demand have demand have an an inverseinverse relationshiprelationship

Change in quantity Change in quantity demandeddemanded

•All this means, is there is All this means, is there is a a price changeprice change

•All the movement is All the movement is alongalong the existing the existing demand curvedemand curve

Change in quantity Change in quantity demandeddemanded

Change in demandChange in demand

•All this means, is a All this means, is a variablevariable has been has been introducedintroduced

•The old demand curve no The old demand curve no longer applies and we longer applies and we have to draw a new onehave to draw a new one

Change in demandChange in demand

Demand IncreaseDemand Increase Demand DecreaseDemand Decrease

Examples of variables Examples of variables in demandin demand

Population increasePopulation increase

Population increasePopulation increase

KrogerKroger

•More people More people in Sunbury in Sunbury means more means more grocery salesgrocery sales

•Kroger Kroger comes herecomes here

IncomeIncome

IncomeIncome

•As more As more people lose people lose jobs, their jobs, their ability to buy ability to buy things things declinesdeclines

Tastes and preferencesTastes and preferences

Tastes and preferencesTastes and preferences

Short ShortsShort Shorts

•The demand The demand for short for short basketball basketball shorts could shorts could not be lowernot be lower

Substitution effectSubstitution effect

Substitution EffectSubstitution Effect

• 2 2 similar productssimilar products

• The price of one The price of one changes, it will effect changes, it will effect the demand for the the demand for the otherother

• The graph to the right The graph to the right represents the represents the demand for Burger demand for Burger King after McDonalds King after McDonalds raised pricesraised prices

Burger KingBurger King

Complimentary goodComplimentary good

Complimentary goodComplimentary good

• 2 products that 2 products that go go togethertogether like PBJ like PBJ

• The graph The graph represents the represents the demand for jelly if demand for jelly if the price of the price of peanut butter peanut butter goes upgoes up

JellyJelly

Law of supplyLaw of supply

• The price goes up The price goes up supply goes upsupply goes up

• The price goes The price goes down supply goes down supply goes downdown

• Supply and price Supply and price have a have a direct direct relationshiprelationship

• They move in the They move in the same directionsame direction

Law of supplyLaw of supplywe all have our pricewe all have our price

Change in quantity Change in quantity suppliedsupplied

•All this means, is there All this means, is there is a price changeis a price change

•All the movement is All the movement is alongalong the existing the existing supply curvesupply curve

Change in quantity Change in quantity suppliedsupplied

Change in SupplyChange in Supply

•All this means, is a All this means, is a variable variable has been introducedhas been introduced

•The old supply curve no The old supply curve no longer applies and we have longer applies and we have to draw a new oneto draw a new one

Change in supplyChange in supply

Increase in SupplyIncrease in Supply Decrease in SupplyDecrease in Supply

Examples of variables Examples of variables in supplyin supply

Price of inputsPrice of inputs

Price of inputsPrice of inputs

Supply of anything that Supply of anything that must transport a productmust transport a product

• Inputs are Inputs are raw raw materials materials used in used in productionproduction

• When they increase, When they increase, firms cannot supply as firms cannot supply as many products at any many products at any given pricegiven price

• The graph shows the The graph shows the negative effects of negative effects of higher gas priceshigher gas prices

Technology Technology improvementimprovement

Technology Technology improvementimprovement

Supply of BooksSupply of Books

• Improvements in Improvements in technology technology improves improves productivityproductivity

• The kindle makes it The kindle makes it cheaper to produce cheaper to produce booksbooks

• The graph shows The graph shows the positive effectthe positive effect

Taxes government Taxes government regulationsregulations

Taxes government Taxes government regulationsregulations

Auto IndustryAuto Industry

• Government Government regulations may regulations may protect the protect the consumer, but they consumer, but they make it more make it more expensive to expensive to produce thingsproduce things

• The graph shows The graph shows the effect of forcing the effect of forcing the auto industry the auto industry to include air bagsto include air bags