Understanding Supply and Demand: Key Concepts and Determinants in Economics
This guide explores the fundamental concepts of supply and demand, highlighting the relationships between price, quantity demanded, and quantity supplied. It examines the Law of Demand, which states that as prices decrease, consumer demand increases, and vice versa. Additionally, it covers essential determinants that influence demand and supply, including income levels, preferences, and the number of consumers or suppliers in the market. This comprehensive overview serves as a valuable resource for anyone looking to grasp the basics of market dynamics and pricing strategies.
Understanding Supply and Demand: Key Concepts and Determinants in Economics
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Presentation Transcript
SUPPLY DEMAND
Plot the following: Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9
Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9 P Qd 9 just a point on the curve. To be on the demand curve a person must be WILLING and ABLE to purchase the product or service. 8 7 6 D is the entire curve. 2 3 9 5 Q
Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9 P Qd 9 just a point on the curve. There is an ___________ relationship between price and quantity. 8 inverse 7 6 D is the entire curve. 2 3 9 5 Q
9 8 7 6 D 2 3 9 5 Q Definitions: Quantity demanded--it is the amount that will be purchased at a specific P. Law of Demand– As price goes down, consumers will buy more!
Qd 9 just a point on the curve. 8 7 6 D is the entire curve. 2 3 9 5 Q Price changes Quantity Demanded Price DOES NOT CHANGE DEMAND!!!!!!!!
Only one variable Qd PRICE PRICE DOES NOT DEMAND!!
Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods As people’s incomes go up demand for normal goods increases. As people’s income go down, demand for normal goods decrease. 3. Income--Inferior Goods As people’s incomes go up demand for inferior goods decreases. As people’s income go down, demand for inferior goods increases.
With a partner, come up with THREE inferior and THREE normal goods!
______Used Furniture Store ______Lazy Boy Store
Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences
Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes
Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes 6. Price of related products: Complements
Eight variables that shift Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes 6. Price of related products: Complements 7. Expected future P’s by consumers 8. Expected future Y (Income) by consumers
What happens to the price of gasoline when consumers think the price of oil will go up? • Speculation increases demand! • The price goes up!
What device do consumers use to buy stuff NOW when they expect their future income will increase?
Review • Law of Demand • P____ Qd _____ • P____ Qd _____ • P changes _____, not _________.
The price of Coke doubles, what happens to the market for Pepsi? P S Increase in price of related product— Substitute P1 P D1 D Q Q1 Q Your market is: Pepsi
What happens to the market for downloaded music when the price of an MP3 player or Ipod goes down? P S Decrease in the price of a complement. P1 P D1 D Q Q1 Q Your market is: Downloaded Music
New market research reveals that corn gives you gas. P S Change in onsumer preference P P1 D D1 Q1 Q Q Your market is: Corn
The U.S. goes through a boom economy, what happens to the market for steak? P S Increase in incomes— Normal goods. P1 P D1 D Q Q1 Q Your market is: Steak
What happens to the market for generic canned goods When there is an income tax increase P S Decrease in Y Inferior good. P1 P D1 D Q Q1 Q Your market is: Generic canned vegetables
Pitbull comes out with a new ad campaign P S Change in preferences P1 P D1 D Q Q1 Q Your market is: Pitbull CD’s
Immigrants leave the state of GA due to new immigration law P S Change in # of consumers P P1 D D1 Q1 Q Q Your market is: Authentic Hispanic food products
Recession worsens, what happens to the market for second hand clothes? P S Decrease in incomes— inferior goods. P1 P D1 D Q Q1 Q Your market is: Second hand clothes
Plot the following: Price Quantity Supplied Qs P $6 2 7 3 5 8 9 9
P S is the entire curve. Qs just a point on the curve. Q Definitions: Quantity supplied--it is the amount that will be sold at a specific P. Law of Supply – Sellers tend to offer more of a good at a higher price!
P S is the entire curve. Qs just a point on the curve. Q Price changes Quantity Supplied Price DOES NOT CHANGE SUPPLY!!!!!!!!
Only one variable Qs PRICE PRICE DOES NOT SUPPLY!!
GUESS HOW MANY DETERMINANTS OF SUPPLY THERE ARE? 5 And if you don’t memorize these variables, YOU WILL FAIL THIS CLASS!! ARE THERE ANY QUESTIONS?
Five determinants of Supply: 1. # of suppliers 2. Costs 3. Physical Availability of Resources 4. Technology 5. Expected Future Prices by Suppliers
Review • Law of Demand = P Qd ____ = P Qd ____ • Law of Supply = P ___Qs = P ____ Qs • What variable changes Qd? • What variable changes Qs?
You can MAKE MONEY by knowing the laws of supply and demand.
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