Supply and Demand

Supply and

Demand

What happens in the

It’s because of the principles of

Supply and

Demand!

“How do the people who I

buy stuff from know how

much to charge me?”

Demand

Has to do with people

wanting

a product.

Demand

willingness to buy

Oh yeah, do I want

to buy that! Look

Why would people want to

buy something?

1. Can purchase be delayed.

2. Substitutes and

complements.

3. Does the purchase

require a large

Supply

Has to do with people

making

a product.

They want to make it so

much because they know

Supply

willingness to sell

Supply

Is not how much of the

stuff is out there!

Warehouse

Why would people want to

sell something?

1. Costs of inputs.

2. Productivity.

3. Technology.

4. Number of sellers.

5. Taxes and subsidies.

6. Government regulations

7. Expectations

“Umm, okay, okay, but

how does all this

turn itself into

the price of what

I buy

?”

?

$

$

6.99 ?

6.99 ?

$

$

$

$

4.95 ?

4.95 ?

$ 8.00 ?

$ 8.00 ?

$

$

17.99 ?

17.99 ?

$

$

34.79 ?

34.79 ?

$

“Demander”

“Supplier”

You have or can do

something I want!

And since monetary units

are used to help us

Remember:

=

value

(what we think of

a thing)

“Demander”

“Supplier”

I think it is worth

$10…

But I

But I think it is worth

only $10!

“Demander”

“Supplier”

Ohhh, but I really want

what he offers!

I may have to

raise

my

asking price!

I may

have to

Now that’s still too

easy!

You’re right!

But here’s why it is a bit

more challenging, and

There’s a whole bunch of

people!

“Demanders”

“Suppliers”

I think it is worth

$10…

I think it’s $13…

I think it’s $8…

I think it’s $11.45…

So then these two guys,

actually, are largely at the

mercy of

market forces.

Hmm…

What

And those market forces are

largely due to this simple

fact…

“Demander”

“Supplier”

I want to buy for as little as I

can and still get it!

I want to

sell for as

much as I

can and

still sell it!

Everybody

wants to

buy low

The law of

Demand

and

the law of

Supply

First! We need to know

about a couple of very

The Law of Demand

When price goes up, quantity

demanded goes _?_.

When price goes down,

quantity demanded goes _?_.

Price and quantity

demanded have

The Law of Supply

When price goes up, quantity

supplied goes _?_.

When price goes down,

quantity supplied goes _?_.

Price and

quantity supplied

have a direct

Supply and Demand

Schedule

For widgets,

Demand

Schedule

Demand

Schedule

$ 1

2

3

Demand

Schedule

Price

Quantity

Demand

Schedule

$ 1

2

3

5

4

3

Let’s graph it!

This is the vertical

Let’s graph it!

Price

Price always goes

along the vertical

Let’s graph it!

Price

$5

4

3

2

Let’s graph it!

Price

Quantity $5

4

3

2

1

1 2 3 4 5

This is the

demand

Let’s graph it!

Price

$5

4

3

2

Is that it? What is the price

now?

Price

Quantity $5

4

3

2

1

1 2 3 4 5

What else do we need?!

Price

$5

4

3

2

Supply

Schedule

Supply

Schedule

$ 1

2

3

Supply

Schedule

Price

Quantity

Supply

Schedule

$ 1

2

3

5

4

3

Price

Quantity

Supply

Schedule

Price

Quantity

Supply

Schedule

$ 1

2

3

1

2

3

Let’s graph it!

Price

Quantity $5

4

3

2

1

Let’s graph it!

Price

$5

4

3

2

1

This is the

supply

Let’s graph it!

1 2 3 4 5

Let’s graph it! Price $5 4 3 2 1

S

D

Ta-da-da-DAH!

DAH!

This is what

this is all

Let’s graph it! Price Quantity $5 4 3 2 1

1 2 3 4 5

S

D

Ta-da-da-DAH!

DAH!

Let’s graph it! Price Quantity $5 4 3 2 1

1 2 3 4 5

S

D

Ta-da-da-DAH!

DAH!

Let’s graph it! Price Quantity $5 4 3 2 1

1 2 3 4 5

Let’s graph it! Price $5 4 3 2 1

S

D

Ta-da-da-DAH!

DAH!

The quantity

that will be

So, in this market at this time…

Widgets will be sold

for $3 a widget.

And three million will

be offered for sale.

Price

In a market economy,

allocate (get out there) the

goods and services to the

uses that buyers

value

most

, according to what

they are willing and able to

What happens

when there is a

change

in either

And that’s not all!

There’s more!

Make sure you note!…

• A shift in quantity demanded

occurs when there is a change

in price.

• A shift in demand occurs when

there is a change in market

conditions affecting the product

or the consumer of the product!

Remember the

In the same way…

• A shift in quantity supplied

occurs when there is a change

in price.

• A shift in supply occurs when

there is a change in market

conditions affecting the product

Remember the

What will happen if…

What will happen with this?

Price

$5

4

3

2

1

S

Demand Schedule

$ 1

2

3

4

5

5

4

3

2

1

Price

Quantity

7

6

5

4

3

Notice how it is demanded more at

How does that look here?

Price

$5

4

3

2

1

S

Hey! The whole demand curve moved! And it has a new name!

Price

Quantity $5

4

3

2

1

1 2 3 4 5

S

Now, what is it exactly that we are looking for? Remember?!…

Price

$5

4

3

2

1

S

And once more for review!

You are then looking to

see the change in price…

To then note what the

change in quantity is.

Price

Something happens that makes people want it less.

Price

$5

4

3

2

1

S

Demand Schedule

$ 1

2

3

4

5

5

4

3

2

1

Price

Quantity

Price

$5

4

3

2

1

S

D

D

Something happens that makes sellers want to sell it more.

Price

Quantity $5

4

3

2

1

1 2 3 4 5

S

Supply Schedule

$ 1

2

3

1

2

3

Price

Quantity

What happens here that shows sellers want to sell it more?

Price

Quantity $5

4

3

2

1

1 2 3 4 5

S

Price

$5

4

3

2

1

S

D

S

The shift of the curve is always either to the left or the right.

Price

Quantity $5

4

3

2

1

1 2 3 4 5

S