• Review test grades and questions
• Begin Chapter 5 – Supply and Demand
• Supply and Demand activities
• You will…
– Understand what demand and supply are
– How to chart them and understand charts
– What affects each of them and how
• Demand is - the amount of a
good or service that consumers
are willing and able to buy at all
prices in a given period
• In order to be part of the
demand of a product, two
things must be true
– Must be willing to purchase the
product
– Must be able to afford the
product
• Law of Demand – as prices
increase, the quantity
demanded decreases.
• Demand can be influenced by price
– Affects the willingness to purchase a product at different
prices
• Using this gives us a Demand Curve
– Shows how much people will/would buy at specific prices
• Demand can be affected by many causes
• Can affect personal and market demand
• Personal demand affects just one person
• Market Demand is the demand of the whole
• Things that can affect demand are…
• Known as demand shifters
– Changes in people’s personal income
– Changes in preferences of products
– Changes in prices of products
• Can be affected by complimentary
products or substitute products
– Complimentary – product used w another
good
– Substitute – different product that does the
same job
– Changes in the number of consumers
in market
– Changes in expectations of the buyers
• Take the information below to make a demand
curve on a graph.
Price of
Soda
# Bought
by Joe
# Bought
by Joe
# Bought
by Joe
$0.25
15
17
16
$0.50
11
15
10
$0.75
8
13
8
$1.00
5
9
7
$1.25
2
5
6
$1.50
1
3
2
Total
Purchased
1.50
Price of
Soda
# Bought
by Joe
# Bought
by Joe
# Bought
by Joe
Total
Bought
$0.25
15
17
16
48
$0.50
11
15
10
36
$0.75
8
13
8
29
$1.00
5
9
7
21
$1.25
2
5
6
13
$1.50
1
3
2
6
1.25
1.00
.75
.50
.25
5
10
15
20
25
30
35
40
45
50
• Changes in Demand – happen when quantities
change at ALL prices
– Demand can increase or decrease
– Always caused by outside factors
• Decrease in demand shifts demand curve LEFT
• Increase in demand shifts demand curve RIGHT
• When curve moves it is referred to as a
demand shift
– Price does NOT affect this, other factors do
1.50
Price of
Soda
# Bought
by Joe
# Bought by
Joe
# Bought by
Joe
New
Customer
Total Bought
$0.25
15
17
16
15
48
63
$0.50
11
15
10
11
36
47
$0.75
8
13
8
8
29
37
$1.00
5
9
7
5
21
26
$1.25
2
5
6
4
13
17
$1.50
1
3
2
2
6
8
1.25
1.00
.75
.50
New consumer increases demand
.25
5
10
15
20
25
30
35
40
45
50
1.50
Price of
Soda
# Bought
by Joe
# Bought by
Joe
# Bought by
Joe
Total Bought
$0.25
23
17
16
48
56
$0.50
19
15
10
36
44
$0.75
15
13
8
29
36
$1.00
9
9
7
21
25
$1.25
6
5
6
13
17
$1.50
3
3
2
6
8
35
40
1.25
1.00
.75
.50
New income for Joe #1 increases demand
.25
5
10
15
20
25
30
45
50
• People find Costco more appealing than Giant…
– What is the affect of the demand curve for products at
• Giant?
• Costco?
– What demand shifter created this?
• Starbucks raises its prices due to a poor coffee bean season
this year…
– What is the affect of the demand curve for products at
• Giant?
• Costco?
– What demand shifter created this?
• You decide to start drinking Caribou Coffee instead of
Starbucks due to the price rise…
– What is the affect of the demand curve for products at
• Giant?
• Costco?
– What demand shifter created this?
• Use the information from your notes to graph
the following information and show the
correct shifts.
• This should be turned in at the end of the
block (if time allows) – if no time allows it is
HOMEWORK!!
• Supply – amount of all
producers willing to sell at
a specific price during a
specific time
• Law of Supply - Sellers want
to sell at higher prices, and
will sell less at lower prices.
• While buyers want more
at a lower price, sellers do
NOT want to sell MORE at
a lower price.
• Just like demand, we use a supply curve to
show what people are willing to sell
– Supply curve – shows amount at specific prices
• Market Supply – sum of all suppliers at a price
Chart shows
what Jasmine is
willing to
make/supply at
different price
levels
Add up all 3 shops and create a graph based on
the final numbers
Graph should take the
sum of all 3 taco places
and place them at the
specific prices they want
to sell at
• Supply shifters change the
supply curve
– Multiple reasons for changes in
supply
– Very similar to changes in
demand
• Shifts caused by many things
• decrease in supply shifts the curve
left
• increase in supply increases
supply to the right
• Changes in the cost of inputs
– when factors of production price
increases/decreases, supply curves will
shift
• Changes in the number of suppliers
– the more people there are the higher the
supply numbers and visa versa
• Changes in profit opportunities
– If money can be made with other
products, companies may change
• Changes in technology - can
increase supply by increasing
productivity
• Changes in producer expectations
– If market price is low, producers may
limit the supply to get a higher price
• Happens with US farmers. Govt pays
them NOT to produce goods; keeps prices
higher
• Changes in government policy
– Can affect in two different ways
• Subsidies – cash payments to help
producers
• Excise taxes – taxes put on goods
• Equilibrium – point
where quantity supplied
meets the quantity
demanded
– No wasted product and no
additional desire
• Equilibrium Price – price
in which equilibrium is
achieved
– Also known as “Market
Clearing Price”
• Elasticity – how much stretch the
QUANTITY demanded or supplied has
when price changes
– degree of elasticity tell economists how
responsive consumers are to changes in
price
• Inelastic – consumer response is slight
or not at all
– usually this way with necessity products
• Elastic – consumer response to price
change is large; would buy something
else if price rose
• Demand Elasticity –
– How the QTY demanded changes
with price
– Elastic goods show a large change in
quantity
– Inelastic goods show little charge
• Supply Elasticity –
– How the QTY of supplied goods
changes with price
– Elastic goods can be produced quickly
– Inelastic goods take more time
• Graphs can also show
the elasticity of goods
– Steep slopes show
inelasticity
– Shallow slopes show
elasticity
• Found by graphing two
points
– Graph the initial price and
quantity and the NEW
price and quantity
• Availability of substitutes
– more substitute products
means more elasticity
• Price vs. Income
– increases in price may/may not
affect you because of your
income
• Necessity v. Luxury
– necessities usually considered
inelastic
• Time
– it takes time for adjustments
that can change elasticity rates
• Graphs can also show the elasticity of goods
– Steep slopes show inelasticity
– Shallow slopes show elasticity
• Found by graphing two points
– Graph the initial price and quantity and the NEW price
and quantity
• Availability of inputs
– Inability to get goods can slow
production
• Mobility of inputs
– how easily products can be moved
to where they are needed for
production
• Storage capacity
– ability to store goods for production
• Time
– additional time allows supply chain
to have time to get to producers