The Laws of Supply and Demand
Demand:
The Consumer’s Side of the Market
It’s lunch hour and you have a fully loaded,
piping hot pizza. You ask your classmates if
they want a slice.
Most likely everyone will say yes. In fact,
those who did not eat breakfast might even
convince you that they need a piece.
Then ask who would buy a
piece. Only some of your
classmates will say yes. Having
something to sell is only the first
thing to economics.
Having people who are willing
and able to pay creates demand
for your product (pizza).
Needs and wants are both
classified as demand to
economists.
Anything that is scarce enough to
demand a price is classified as an
economic good or service.
The first law of supply and demand:
As the price of something rises,
people will buy less of it. As the
price of something falls, people
will buy more of it.
What happens to the number of bidders as
the price rises?
Supply:
The Producer’s Side of the Market
Demand is only one side of your pizza market.
Someone must supply the product (pizza).
Supply is the opposite of demand.
On the demand side of the
market are consumers (buyers),
and on the supply side of the
market are producers (sellers).
The second law of supply and demand:
As the price of something rises, suppliers
produce more of it. As the price of something
falls, suppliers produce less of it.
Remember:
High quantity = high prices
Low quantity = low prices
High quantity supplied = low prices
Low quantity supplied = high prices
The Hidden Market
What is the hidden market?
Hidden Market – consumers with money to
spend, but for some reason do not buy.
Reaching the hidden
market is the aim of every
business venture. How
can you make these
people buy your product?
What is the substitution effect?
Substitution effect – tells us that for any
economic good or service, there is a
substitute.
Wise consumers use this to their advantage.
For example:
Some computers may
just be too expensive
for some people, but
they might be willing to
buy a cheaper
substitute made by the
same manufacturer.
What other examples can
you think of?
Assignment:
Second-hand stores (like Frenchy’s and Value
Village) that sell used clothing have become
popular in recent years.
Explain why you think this is so with reference
to supply and demand, hidden market and
substitution effect.