The Law of Demand
The Law of Demand states that there is an inverse relationship between the price of a good or service and the
quantity that buyers are willing to purchase in a given time period. This means that the more expensive the
good or service is, the less of it consumers are willing to purchase. However the cheaper the good or
service the more the consumer will want to purchase. For example consumers will buy more clothes
when stores like Myer and David Jones have a store sale. More strawberries are purchased at the height of the
season due to the price being low because strawberries are more plentiful.
Bob loves listening to music on his stereo while studying when CD’s are more expensive at $40 each he will
only buy 4 of them, however when they are $20 he will buy 10 of them.
This is Bob’s demand schedule (table) for CD’s
Point
Price per CD ($)
A
B
C
D
40
30
20
10
Quantity Demanded (per
year)
4
6
10
16
1. How much money will Bob spend per year on CD’s at $40 per CD?
2. How much money will Bob spend on CD’s per year at $10 per CD?
3. At which price point will Bob spend the most money on CD’s?
4.
How many CD’s do you think Bob would buy at $15 per CD?
5.
Graph Bob’s demand schedule for CD’s
Title:
The Law of Supply
The Law of Supply states that there is a direct relationship between the price of a good or service and the
quantity that sellers are willing to offer for sale in a given time period. This means that the more expensive
the good or service is the more of it sellers will want to supply. However the cheaper the good or service the
less of it the sellers will wish to supply. This is because the at the higher prices the supplier will make more
money, so it is in their best interest to produce more of that good or service at the higher price. At the lower
prices the supplier will make less profit so will not want to produce as much because it is costing them more to
make it than the profits are returning. For example if it cost a farmer $2 a kilo to produce tomatoes and the
market price was only $1.50 per kilo the farmer would not want to produce tomatoes and would instead grow
another vegetable that would make more money.
Joe’s music shack sell CD’s, at $20 per CD they are supplied 35 000 CD’s per year. At $30 per CD Joe’s music
shack is supplied with 45 000 CD’s per year.
This Joe’s music shack supply schedule for CD’s.
Point
Price per CD ($)
A
B
C
D
40
30
20
10
Quantity Supplied
(Thousands per year)
50
45
35
20
6. How much money will Joe’s music shack make on CD’s at $40 per CD?
7. How much money will Joe’s music shack make on CD’s per year at $10 per CD?
8. At which price point will Joe’s music shack make the most money on CD’s?
9.
How many CD’s do you think Joe’s music shack will sell at $15 per CD?
10. Graph Joe’s music shack supply schedule for CD’s
Title: