6.1 Supply and Demand
Objective:
I. Circular Flow of Income
A. Factor Market – where businesses
1. Households earn
B. Product Market – businesses supply
1. Households return
DRAW IT!
C. In a mixed economy, the government also plays a role
1. Individuals and businesses
2. The government uses that money to
II. Supply and Demand
A. Demand – desire to
1. Law of Demand – (Think like a consumer) When a good’s price is
consumers will buy
When the good’s price is
consumers
will buy
Draw a Demand Curve sloped
B. Supply – the amount
1. Law of Supply - (Think like a producer)The
price, the
As price falls,
the
Draw a Supply Curve -
sloped
C. Equilibrium Price - When quantity
quantity
1. Equilibrium is ideal for
of their
2. Equilibrium is ideal for
right amount of
D. Surplus -If
1. When price is too
E. Shortage – If
1. Price is too
supply
and
are at the
because more
because the
exceeds
, goods and services are limited by
exceeds
so goods and services exchanged are limited by
III. Changes in Demand
A. Change in the quantity demanded due to a
occurs
the demand curve
B. Demand Curves can also shift in response to the following factors:
(Remember BITER:
1. B
2. I
c3 T
4. E
5. R
a. Substitute Goods – a product that can be
)
- The price of the substitute good and demand for the other
good are directly related
- For example:
b. Complementary Goods – a good that
- When goods are complements, there is an inverse
relationship between the price of one and the demand for the
other
- For Example:
Increase in Demand
C. Changes in any factors
the demand curve to shift either:
a. Decrease in Demand shifts to the
that price
b. Increase in Demand shifts to the
demanded at each price
IV. Changes in Supply
A. Change in the quantity supplied due to a
Occurs
the supply curve
Decrease in Demand
cause
(less demanded at
(More
B. Supply Curves can also shift in response to the following factors:
(Remember STONER:
1. S
)
2. T
3. O
4. N
5. E
6. R
Decrease in Supply
C. Changes in any of the factors
Supply curve to shift either:
1. Decrease in Supply shifts to the
supplied at each price)
2. Increase in Supply shifts to the
each price )
Increase in Supply
causes the
(Less
(More supplied at
Demand Practice
Read each scenario. Determine whether their will be an INCREASE or DECREASE in the
quantity demanded
1. The income of Pago-Pagans declines after a typhoon hits the island.
2. Pago-Pagan is named one of the most beautiful islands in the world and tourism to the
island doubles
3. The price of Frisbees decreases (Frisbees are a substitute for boomerangs)
4. The price of boomerang t-shirts decreases, which I assume all of you know are
complementary goods.
5. The Boomerang Manufacturer decides to add a money back guarantee on their product,
which increases the popularity for them.
6. Many Pago-Pagans begin to believe that they may lose their jobs in the near future (Think
expectations!
Supply Practice
Read each scenario. Determine whether their will be an INCREASE or DECREASE in the
quantity supplied.
1. The government of Pago-Pagans adds a subsidy to boomerang production
2. Boomerang producers also produce Frisbees. The price of Frisbees goes up.
3. Boomerang producers expect an increase in the popularity of boomerangs worldwide
4. The price of plastic, a major input in boomerang production increases.
5. Pago-Pagan workers are introduced to coffee as Pago-Paga becomes integrated into the
world market and their productivity increases drastically
6. Pago Pagan producers use a new machine that allows factories to produce more Frisbees
in less time.