Demand/Supply

Economics

Mr. Biddle

Microeconomics

• The area of economics that deals with behavior and decision making in small units– Looks at individuals

and businesses

• Explains how prices are determined and how individual economic decisions are made

You look at the individual tree not the forest

Introduction to Demand

• Demand - The desire, ability, and willingness to buy a product– It is not enough to desire a product

– I can want to buy a Dodge Challenger, but I’m not in the market to purchase one

Desire + Ability + Willingness = Demand

Introduction to Demand

• Imagine we are going to open up a shop that sells DVD’s

• The first thing we need to do is find out the demand for our product so we can set a price

Introduction to Demand

• There are many ways to find the demand:– Survey

– Look at past DVD sales

– Visit similar shops to acquire info

Introduction to Demand

• Once we have our data gathered we can create a table known as a Demand Schedule

• This is a listing that shows the various quantities demanded of a particular product at various prices in the market– This only shows the demand

for one consumer

Consumer A said he would purchase the following amounts of DVD’s at the following prices:

0 at $30 0 at $25 1 at $20 3 at $15 5 at $10 8 at $5

Introduction to Demand

• A demand schedule shows the amount that a consumer is willing and able to buy at each price

• It also shows that the consumer is willing to buy more units as the price gets lower

Price Quantity Demanded

$30 0

$25 0

$20 1

$15 3

$10 5

$5 8

Demand Schedule

* *

Introduction to Demand

• Demand Curve – a graph showing the quantity demanded at each price in the market– You transfer your

information from the demand schedule to a graph by plotting the points and then connecting them

– Both the schedule and curve show the same info, one is a table the other is a graph

$30

$25

$20

$15

$10

$5

1 2 3 4 5 6 7 8 9 10

Introduction to Demand

The Law of Demand – The quantity demanded of a good or service varies inversely with its price

Basically

When price goes up, demand goes down or Vise Versa

Market Demand Schedule/Curve

• The market demand schedule/curve shows the quantities demanded by everyone who is interested in purchasing the product in the market

• You must add up every consumers demand to get your market demand

Market Demand Schedule

Price Consumer 1 Consumer 2 Market Demand

$30 0 0 0

$25 0 1 1

$20 1 2 3

$15 3 3 6

$10 5 5 10

$5 8 7 15

Market Demand Curve

$30

$25

$20

$15

$10

$5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Supply

• Supply- the amount of a product that would be offered for sale at all possible prices that could prevail in the market

• How much a dealer is willing to sell at each price

• A workers work is his/her supply. The higher he/she is paid the more supply he/she will be willing to give

Law of Supply

• The principle that suppliers will normally offer more for sale at high prices and less at lower prices.

(Suppliers decision)

• You want to sell more at higher prices, b/c you make more money per unit

Supply Schedule

• A listing of various quantities of a particular product supplied at all possible prices in the market

• Supply goes up with the price

• Opposite of Demand

Price Quantity Supplied

$30 8

$25 7

$20 6

$15 4

$10 2

$5 1

Supply Schedule

Supply Curve

• A graph showing the various quantities supplied at each and every price that might prevail in the market

• Slopes from the left to the right showing a positive slope

Remember this is only one firm

Market Supply Schedule/Curve

• The supply schedule/curve that shows the quantities offered at various prices by all firms that offer the product for sale in a given market

MarketSupply Schedule

Price Firm A Firm B Market

$30 8 5 13

$25 7 4 11

$20 6 3 9

$15 4 2 6

$10 2 1 3

$5 1 0 1 

MarketSupply Curve

Example

Quantity Supplied

• The amount that producers bring to the market at any given time

A Change in Quantity Supplied

• The change in amount offered for sale in response to a change in price

• When the price changes so does the supply

Money Statement

• The bottom line is that sellers (producers) want to sell more of their products when the price is high and less when the price is low, b/c they want to get as much money for their product as possible

Change in Supply

• A situation where suppliers offer different amounts of products for sale at possible prices in the market

• Changes in supply, whether they’re increases or decreases can occur for several reasons.

Cost of Inputs

(Money you have in a product)

• The cost to produce a good has an impact on how much sellers are willing to supply

• A decrease in the cost of inputs, such as labor or packaging, lead to the seller increasing supply or vise-versa

Productivity

(How much you make in a certain time period)

• When workers work more efficiently they produce more supply in shorter time

• It is up to management to motivate and keep the workers happy to be more efficient, b/c if they aren’t happy they won’t get as much work done

                                                                                                                                                                          

                          

                                                                                                                                                                             

                       

Technology

• New Technology can help increase supply

• New Machines, chemicals, or industrial processes can increase supply by lowering the cost of production, or by increasing productivity– Ex- The assembly line

increased the production of automobiles

Technology

• Technology can have a negative effect on supply– Ex-If a machine breaks

down than the supply would decrease

• However, Technology normally has a positive effect

Taxes and Subsidies

Taxes • Firms view taxes as a

cost • If a producers inventory

(products) are taxed it is viewed as a rise in the cost of the product (Supply would decrease)

• If taxes were lowered or cut than supply would increase

Taxes and Subsidies

• Subsidy- a government payment to an individual, business, or other type of group to encourage or protect a certain type of economic activity

• Subsidies lower the cost of production

• They encourage old producers to stay in the market and new ones to enter.

• Farmers receive subsidies to stay in business

Expectations

• Future expectations of the price of their products can effect how much a supplier is willing to supply

• If the producer thinks the price of his product will go up in the future he will with hold some of his supply

• They may predict a fall in price and try to produce and sell as much as possible ASAP

GovernmentRegulations

• When the government sets new rules or laws it can effect supply

• Ex- If automobiles have to have certain safety equipment, like airbags it would increase the cost of production and decrease supply

Number of Sellers

• The more people there are selling products the bigger the supply is in the market (Vise-Versa)

• There are people entering and leaving the market everyday.– The Internet is helping to

add people to the market

How Supply and Demand Effect Each Other

• Supply effects demand, b/c when there is small amounts supplied than the demand goes up, b/c not everyone demanding the product is receiving it

• When supply is high the demand goes down, b/c everyone demanding it is getting it

• Demand effects supply, b/c when more people buy a product the supply goes down. The less people buy a product the higher the supply

Price Quantity Supplied

$30 8

$25 7

$20 6

$15 4

$10 2

$5 1

 

Price Quantity Demanded

$30 1

$25 2

$20 3

$15 5

$10 7

$5 9

Demand Schedule Supply Schedule

Demand/SupplySchedules