Supply and Demand

1. Supply and Demand And the Lakers!! Economics, January 14, 2014

2. More on the Theory • Why? Generally speaking, the price of something will go up if the demand goes up. • Why? Because the seller thinks he or she can get more money for whatever he or she is selling.

3. The Theory • Supply: how much of something you have. • Demand: how much of something people want. • supply +demand= • price of something.

4. Pay, question • Professional athletes: How much is a superstar in the NBA such as Kobe, paid compared to a benchwarner(Ryan Kelly)?


5. Pay, Answer • Kobe $30,453,805 • Kelly, a rookie, will earn the salary of $490,180

6. Staples Center & Tickets • Market: Ticketmaster • Supply: In a box there is only 18 seats • Price: Average NBA All-Star Game ticket prices at this same time last year were $335. • Demand: High NBA All Star Game ticket prices average $2130

7. Scarcity • "How many superstars are there in the league, and how many average players are there? • The cost for the special items is usually higher, because they are harder to acquire.

8. Consumers Considerations • If you could pay $600 or $350 for a Laker ticket which would you pay? • If you only make $400 a month and a ticket is $600 are you likely to buy a ticket?

9. Elastic Demand • The Clippers are playing well this season, so scalpers are selling the tickets for more. If they start playing badly again like usual, the price of tickets will drop.

10. Price of a Beer at Staples: Inelastic Demand • People associate beer with basketball so people will pay for it at any price. • It is $10.00 for a Blue Moon at Staples, when in reality a single 12 oz bottle is sold at Ralph’s for $1.49

11. Price Determination: Why a Lakers ticket is so much? • For Jerry Buss, the owner, to make money off the Lakers tickets must cover the cost of production so he will earn a profit. • The production in this case is Kobe’s huge salary, as well as the salary of the other Lakers.

12. Price Determination: Why tickets are sold not a million dollars? • While Jerry Buss may want to sell the tickets at a million dollars a piece, he won’t because then no one will buy them. • He has to consider how much people will pay, and how to make a profit.

13. “Law of Demand” and price of Laker’s tickets • Demand for the product, The Tickets, varies inversely with its price. • Meaning: As long as they are Champions, win Finals, more people will want the tickets so the price will be high. • If the Miami Heat wins Finals, less people will want tickets for Laker Games and the price will go down.

14. Adjustment • The name of the process that takes place so the Consumer, Laker fans, and the Producer, Jerry Buss, can make the exchange of buying Laker tickets.

15. Supply and Demand and Adjustment • Demand /\ Price /\ = Supply _ • Want UP $ UP = Supply Same • Demand \/ Price \/ = Supply _ • Want DOWN $ DOWN= Supply Same • Demand _ Price /\ = Supply \/ • Want SAME $ UP= Supply DOWN

16. More Supply and Demand and Adjustment • Demand _ Price \/ = Supply /\ • Want Same $ DOWN= Supply Up • Demand /\ Price _ = Supply /\= Demand • Want UP $ SAME= Supply UP=Want • Demand /\ Price /\ = Supply \/ • Want UP $ UP= Supply DOWN • Demand \/ Price \/ = Supply/\ • Want DOWN $ DOWN = Supply UP

17. Why Adjust? • So that we can try to reach Equilibrium (very unlikely)

18. What does equilibrium price Mean? • They intersect at the price where the amount producers are willing and able to supply converges with the amount consumers are willing and able to purchase. • This point of convergence is called the equilibrium price. • Theoretically it is where supply and demand meet and prices settle.

19. Why does Equilibrium Price Matter? • If suppliers (Jerry Buss) ignores demand, and continues to add seats to Staples and prices tickets too high, they will not be purchased. Instead they will sit empty. • If Staples only sells to few seats, demand will go unmet and consumers will clamor for more.

20. Why Graph Supply and Demand? • Plot supply and demand for a product on the same graph • We discover how producers and consumers will interact in the marketplace and where exactly they will converge (EQUILIBRIUM PRICE). • Example: If we plot Lakers tickets available (supply) & how many people who want Lakers tickets (Demand)=Jerry Buss (Producer) + Lakers Fans (Consumers) interact on Ticketmaster (Marketplace)=best price for all parties (converge).

21. Supply Curve=Lakers tickets available

22. Demand Curve=how many people who want Lakers tickets

23. Supply (Lakers tickets available) + Demand (people who want Lakers tickets) =Equilibrium Price

24. New Suppliers Shift This clamoring for more goods might encourage new suppliers to enter the market. Think Iphone and Smart phones.

25. Supply shiftNew technology=s2increasing production costs=s3 If factors such as the introduction of new technology or decreasing production costs shift the supply curve to the right (S2) or if other factors such as new government regulations or increasing production costs shift the supply curve to the left (S3) the market will produce a new equilibrium price.

26. Demand shift Similarly, if demand shifts for any reason (the changing price of substitution or complementary goods, changing income, etc.) the market will generate a new equilibrium price

27. Create your Own Supply and Demand Graph Choose a product you care about! Demand A Price of Item Supply B $120 $90 $60 $30 $15 $0 C equilibrium Quantity of Item 0 5 10 15 20 25 30

28. Diagram Supply, Demand, PriceUsing the same example as your graph, diagram the information • Demand Up Down Same • 1. • 2. • 3. • 4. • 5. • 6. • 7. Price Up Down Same Supply Up Down Same