supply and demand only
TRANSCRIPT
microeconomics
● Microeconomics:● study of small units, such as individuals and firms.
● Decisions made by:● People● Families● Clubs/organizations● Small businesses
*these decisions help shape bigger decisions, like prices
what is demand?
● To Demand: Being willing and able to buy a good or service
● calculating the level of Demand involves two variables:● Quantity of a product (how many will people buy?)● Price of a product (how much will people pay?)
How many of you would want to buy one peanut butter and jelly sandwich for the price of $2.00?
How many of you would want to buy one peanut butter and jelly sandwich for the price of $0.50?
What creates demand?
Advertising, fashion trends, and new product introductions serve to create
consumer demand
The law of demand
●For most products and services: ● Price increase = less quantity demanded●Price decrease = more quantity demanded
The individual demand schedule
The individual demand schedule shows a consumer’s quantity demanded of a good at all prices that might prevail in the market.
Peanut butter and jelly sandwich sales
Price per sandwichQuantity of sandwiches
demanded by Riker
$0.50 10
$1.00 9
$1.50 8
$2.00 7
$2.50 6
$3.00 5
$3.50 4
$4.00 3
The individual Demand CurveThe Individual demand curve is a graphical representation of the
individual demand schedule.
2 3 4 5 6 7 8 9 10 11$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50
Peanut butter and jelly sandwich sales
Quantity of sandwiches demanded by Riker
$Pri
ce p
er s
and
wic
h $
The market demand curve
● We know that individual demand is the Q demanded at each P for an individual● But what good is an individual curve to a company?
● The market demand curve shows the demand of ALL consumers in a particular market
Riker’s demand
P Q
$4 3
$1 9
Sally’s demand
P Q
$4 5
$1 20
Mike’s demand
P Q
$4 0
$1 5
Market demand
P Q
$10 8
$1 34
What can change the amount of quantity demanded?
● A change in Price!!● More $$ = less quantity demanded● Less $$ = more quantity demanded
● Two effects of price change that cause demand to inc/dec are: ● The income effect – when a price changes, our disposable income goes
up or down. ● The substitution effect – a price change that makes other products look
more/less costly
*these are changes that appear along the demand curve
What can shift the demand curve?
● Change in demand (shifts the curve). ● Any change other than price
● TRIBE● Taste – Consumer’s tastes change due to advertising,
trends, rumors, new products
● Related goods’ prices● Substitutes – products that can be used interchangeably
● Complements – products used together
Change in demand cont.
● Income – more income = more demand
● Buyers - Number of consumers in the market
● More consumers = more demand
● Expectations – changing buying habits based on
what is expected to happen to prices in the future.
*these are changes that appear in a totally new
demand curve, in a different position on the graph
Riker invites friends for lunch (change in # of buyers)
Price Quantity Demanded by riker
Riker + friends demand
$4.50 0 0
$4.00 3 5
$3.50 4 6
$3.00 5 7
$2.50 6 8
$2.00 7 9
$1.50 8 10
$1.00 9 11
$0.50 10 12
Demand Elasticity:
●consumers react to change in price by changing the quantity demanded ●However: the size of the reaction will vary depending on the product in question.
●Elastic demand: a change in price causes a relatively larger change in quantity demanded.
●Inelastic - change in price causes a relatively smaller change in the quantity demanded.
Elasticity
A fast food meal
toilet paper
Which of the above goods would be affected most by a price change?
Elasticity
● So how can we determine elasticity?● Is the purchase necessary? ● Yes:● No:
● Are equally good substitutes available? ● Yes● no
Elasticity
Freshveggies
cup of coffee
gasoline from a particular
station
gasoline in general
Is the purchase necessary?Y: inelasticN: elastic
Are there Substitutes?Y: elasticN: inelastic
Type of elasticity
N N N Y
Y Y Y NE E E IE
What is Supply?
● The willingness and ability of a supplier to produce a product.
The law of supply:● Suppliers will offer more of a product for
sale at higher prices than at lower prices.
Supply schedule (individual)
●Chart showing how much a producer is willing to supply at all possible prices.
Price per PBJ Quantity of PBJ’S
4.50 11
4.00 10
3.50 9
3.00 8
2.50 7
2.00 6
1.50 5
1.00 4
.50 3
The supply schedule (individual)
2 3 4 5 6 7 8 9 10 11 12$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00
Market for PBJ’s
Quantity of PBJ’s supplied by Riker’s sandwich shop
Pri
ce p
er P
BJ
The Market Supply schedule
● The market supply curve shows the supply offered by all companies in a market.
● To find market supply, add together all companies’ supply.
Market supply schedule
Quantity of PBJ’s Supplied byAll Firms in the Market
How many PBJ’s are supplied if the price is $2.50 per sandwich?
Price Firm X Firm Y Firm Z$4.50 50 500 1,000$4.00 40 400 900$3.50 30 300 800$3.00 20 200 700$2.50 10 100 600$2.00 5 50 500
What can cause a change in quantity supplied?
● a change in price leads to a change in quantity supplied
● a change in quantity supplied is shown by movement along a supply curve.
The supply schedule (individual)
2 3 4 5 6 7 8 9 10 11 12$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00
Market for PBJ’s
Quantity of PBJ’s supplied by Riker’s sandwich shop
Pri
ce p
er P
BJ
What can move the supply curve?
Anything that makes it more/less expensive to produce the good or service
ROTTEN● Resources– cost and availability (land, labor, capital)● Other goods’ prices – substitutes/complements● Taxes, subsidies, government regulation● Technology and productivity ● Expectations of the producer● Number of firms in the industry
Elasticity of Supply
● A measure of how the supply of a product responds to a price change.
● Elastic supply – a big change in supply
● Inelastic supply – a small change in supply
Elasticity of Supply
● So what determines elasticity of supply?● The only large determinant is production, so
we ask this question:
Can a company adjust quickly to a new price?
If YES, then the product is elastic.
If NO, then the product is inelastic.
Elasticity of Supply
● Hershey Kiss● Doesn’t take a lot of capital to make● Not a highly skilled process● Made by machines● Quick process
ELASTIC