ECONOMICS: UNIT 4 Supply and Demand

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ECONOMICS UNIT 4Supply and Demand

• Mr. Phinizy
• (by MR. NOVOTNI)

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DEMAND

• DEMAND desire, ability and willingness to buy a
  product.
• Measured by sales.

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DEMAND CURVE

• DEMAND CURVE shows the how much consumers will
  demand at each and every price.
• Demand curves always go DOWNWARD
• Supply curves always go UPWARD

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LAW OF DEMAND

• LAW OF DEMAND
• as prices go up demand goes down
• As prices go down demand goes up

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CHANGE IN DEMAND

• CHANGE IN DEMAND when people are willing to buy
  more or less of a product at the SAME PRICES.
• Curve shift to LEFT decreased demand
• Curve shift to RIGHT increased demand

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WHY DOES DEMAND CHANGE?

• Consumer Income As income goes up/down,
  consumers buy more/less of a product.
• Consumer Tastes Advertising, trends, and even
  seasons can affect demand.
• Prices of Related Products change in the price
  of related products can change demand.
• Ex. Butter vs. Margarine
• Population
• Consumer Expectations

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SUBSTITUTION EFFECT

• SUBSTITUTION EFFECT Change in quantity demanded
  for one product because of a change in the price
  of another product.
• Ex. Butter prices go up, so people will start
  buying more margarine (a substitute for butter)

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COMPLEMENTARY GOODS

• COMPLEMENTS related goods where use of one
  increases the use of the other. (CDs and CD
  players).
• EX - Lower price of CD players means higher
  demand for CD players and also higher demand for
  CDs.
• EX - Higher CD player prices cause less demand
  for CDs.

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SUPPLY

• Law of Supply
• As prices go up quantity supplied goes up
• As prices go down quantity supplied also goes
  down.
• (Supply curves go UPWARD because at higher
  prices, sellers want to sell more)

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SUPPLY

• Reasons for Changes in Supply
• Cost of inputs
• Productivity
• Technology
• Number of Sellers
• Subsidies govt payment to a business to
  encourage or protect an economic activity
• Expectations
• Government Regulations

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DEMAND ELASTICITY

• DEMAND ELASTICITY extent to which changes in
  price cause changes in quantity demanded.

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DEMAND ELASTICITY

• Demand is ELASTIC when a small change in price
  causes a large change in quantity demanded.
• Demand is INELASTIC when a given change in price
  causes a relatively smaller change in quantity
  demanded.

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WHAT DETERMINES ELASTICITY?

• Is it a NEED or a LUXURY?
• luxury elastic need inelastic
• Are decent substitutes available?
• Yes elastic, No inelastic
• 3. Does the purchase use a large portion of
  income?
• Yes elastic, No - inelastic

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• Specific Market vs. General Market
• Exxon Gasoline vs. Gasoline

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PREDICT THE DEMAND ELASTICITY

• 1. Salt 9. Cigarettes
• 2. Toothpicks 10. China and tableware
• 3. Fresh tomatoes 11. gasoline
• 4. Movie tickets 12. coffee
• 5. Automobiles 13. electricity
• 6. Chevrolet automobiles
• 7. Housing
• 8. Physician services

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SUPPLY AND COST

• Fixed Cost cost a business incurs even if
  output is 0.
• Overhead total fixed cost
• Depreciation gradual wear and tear on capital
  goods through use over time.
• Variable Cost costs that change when output
  changes
• Ex workers, raw materials

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SUPPLY AND COST

• Total Cost of Production fixed costs variable
  costs
• Marginal Cost extra cost incurred when a
  business produces one additional unit of a
  product.
• How much will it cost you to produce one more
  unit of your product?

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• Total Revenue number of units sold X average
  price per unit
• Marginal Revenue extra revenue made from
  production and sale of one additional unit of
  output.
• How much money will you make if you produce one
  more unit of your product?

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• Break-even point total output a business needs
  to sell to cover total costs
• As long as MC is less than MR, businesses will
  keep hiring workers.
• Maximum profit is reached when MC MR.