Supply and Demand
1
The Laws of Supply and
Demand
When people's actions are based on selfinterest, people respond to incentives:


When the cost of an activity is raised
people do less of the activity;
When the benefit of an activity is reduced
people do less of the activity.
2
The Law of Demand

As the price gets higher, people want
less of a particular product
Price
$40
$30
$20
$10
10
20
30
40
50
60
70
Quantity
3
Demand Curves Can Change

Fashions, technology, new information,
etc. can all shift the demand curve.
Price
$40
$30
$20
$10
10
20
30
40
50
60
70
Quantity
4
The Supply Curve

As the price gets higher, suppliers are
willing to supply more of a product
Price
$40
$30
$20
$10
Quantity
10
20
30
40
50
60
70
5
Equilibrium
Price
$40
$30
Supply
Demand
$20
Quantity
$10
10
20
30
40
50
60
70
This represents what the price is at
the moment in the marketplace.
6
Examples of Supply and Demand




Housing
Gasoline
Orange juice after a freeze in Florida
Import quotas (affecting supply)
7
What if...?

...peanut butter was discovered to be a cure for cancer?

...a cheap, environmentally-friendly source of automobile
fuel was discovered?

... eating large quantities of Brussel sprouts caused rapid
weight loss?

...a safe, no-fail patented weight-loss pill was developed
by a drug company?
8