Economics
Supply and Demand
Supply and Demand
• Demand curve
– When the price of a
product is high,
consumers don’t buy
much of it
– When the price of a
product drops,
consumers are willing
to buy more
– Thus the demand curve
slopes downward
http://z.about.com/f/wiki/e/en/thumb/f/f7/Simple_supply_and_demand.png/320pxSimple_supply_and_demand.png
Supply and Demand
• Supply curve
– If a product sells at a
low price, producers
make little of it
– As the price rises,
producers are willing
to make more of the
product
– The supply curve thus
slopes upward
http://z.about.com/f/wiki/e/en/thumb/f/f7/Simple_supply_and_demand.png/320pxSimple_supply_and_demand.png
Supply and Demand
• Price reaches an equilibrium at
the intersection of the supply
curve and the demand curve.
• If price is higher than this
point:
– Producers will want to produce
more
– Customers will want to pay less
– Thus price drops back to
equilibrium
http://z.about.com/f/wiki/e/en/thumb/f/f7/Simple_supply_and_demand.png/320pxSimple_supply_and_demand.png
Supply and Demand
• Consumers are pursuing
their own best interest
• Producers are pursuing
their own best interest
• “Invisible Hand”
matches supply with
demand
– Adam Smith
http://z.about.com/f/wiki/e/en/thumb/f/f7/Simple_supply_and_demand.png/320pxSimple_supply_and_demand.png
Shift in Demand Curve
• Demand curve may shift to the
left
– Not willing to pay as much
– Thus price drops
– Due to drop in income
• Demand curve may shift to the
right
Demand curve shift to the
left
– willing to pay more for product
– Due to:
• Increased population
• Increased income
• Changes in taste
Shift in Supply Curve
• If it becomes easier to
produce a product,
supply curve will shift
to right
–
–
–
–
–
More farmland
More children for labor
Fertilizer available
Water available
Technology available
• Price drops
Demand and Supply Questions:
1. What will suppliers do if the price is high?
2. What will consumers do when the price is low?
3. What is it called when the supply and demand curve
4.
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intersect?
What is Adam Smith talking about when he mentions
the “Invisible Hand?”
When will the demand curve shift to the left?
When will the demand curve shift to the right?
When will the supply curve shift to the left?
When will the supply curve shift to the right?
Quiz Information
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Who controls supply?
What is the United States standard of living? Explain.
What is productivity growth?
What is inflation?
How have technological innovations increased productivity? Example?
What is included in a country’s GDP?
How does increased productivity increase GDP?
What is a country’s standard of living?
How does productivity increase a country’s standard of living?
When price goes up, then demand goes
.
When price goes down, then demand goes
.
When price goes up, then supply goes
.
When price goes down, then supply goes
.
The demand curve slopes
.
The supply curve slopes
.
** Also vocabulary from Monday**