Objectives: Describe supply and demand orally and with graphs Discuss how supply and demand affect prices of products and services EQ: How does supply and demand affect prices?
Participating in a Market Economy (USA) In a market economy, buyers and sellers use the marketplace to make economic decisions. Buying decisions are made by consumers— including me and you, businesses and gov’t.
Participating in a market economy The individual buying decisions of consumers (me and you) have a tremendous influence on the market economy. consumer A person who buys and uses goods and services. (we are all consumers)
Participating in a market economy Producers pay close attention to the needs and activities of consumers. What is a producer? How do they decide what products to sell? $$$$$$$$ producer Individuals and organizations that determine what products and services will be available for sale.
A bit confusing, eh? If businesses can produce and sell whatever they want at whatever price…. And we, as consumers, can buy whatever we want at prices we want to spend…. Wouldn’t this be one big messed up system? How could producers and consumers ever agree? NO! That’s where theory of Supply and Demand comes to the rescue!
Consumers set demand WE control demand! If consumers don’t want to buy a product, the demand goes Ex – New DVD in stores demand The quantity of a good or service that consumers are willing and able to buy.
Demand price When price increases the demand will decrease because people will buy less. P P D D
Figure 1 -2 Supply, Demand, and Market Price* Draw an example of this in your notes! Demand curve is always sloping downward Hint: Demand – Down
Producers establish Supply Understanding demand tells a business what type and what quantity of products and services to supply. Duh. A good business obviously isn’t going to keep producing a good/service that isn’t in demand anymore. Ex – silly bands will soon fade away like dust in the wind (pretty much already have)
Consumers set demand If a consumer wants a product/service and is willing to pay more money for it…. Heck yeah! They are going to supply it! Ex – DVD’s again supply Refers to the quantity of a good or service that businesses are willing and able to provide.
Figure 2. 1 Supply, Demand, and Equilibrium *Supply curve is always upward sloping. Hint: Supply – SUP!
Supply and price – think in terms of a producer If price of a product increases, the supply will increase because the supplies will make more money. P S
Determining Price – pg 25 Factors influencing Demand – When we see a bunch of products that will satisfy our want/need, demand is low – When we can’t find a good substitute for a product we want, demand is high
Determining Price – pg 25 Factors influencing Supply – Supply of a product affects price • Midwest had a drought, supply of corn is down – Competition – • How does it affect supply and prices? – Natural disasters • You think of an example
Determining Market Price Supply, demand, and competition determine the market price for a product or service.
Determining Market Price Market price The point where supply and demand are equal
Figure 2. 1 Supply, Demand, and Equilibrium Demand What’s this called? Market Price Supply
1. The demand curve slopes which way? Downward
1. The supply curve slopes which way? Upward
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