Supply Demand Market Competition Demand the

Supply & Demand: Market Competition

Demand: the desire, ability, and willingness to buy a product

Demand Schedule i. Tunes Downloads Price $5 $2. 99. 50. 10 Quantity Demanded

Law of Demand The quantity demanded of a good or service varies inversely with its price. P QD

Think of your favorite food…

Law of diminishing marginal utility

Change in quantity demanded v. change in demand

Change in quantity demanded

What causes a change in quantity demanded? PRICE

Change in Demand People/consumers are now willing to buy different amounts of a product at the same price.

What makes this happen? Consumer Income Consumer taste Price of related goods Substitute goods Complementary goods Expectations Number of consumers

1) Consumer Income When your income increases you can afford to buy more goods at the same price. When your income decreases you can afford to buy less at the same price.

2) Consumer Tastes Marketing Popularity Fashion trends News reports Introduction of new products Changes in season

3) Substitute Goods A change in the price of a related product can cause a change in demand Butter/Margarine example Seinfeld Substitute Goods netflix

4) Complementary Goods If the quantity demanded for one good increases, then the demand will increase for complementary goods (and vice versa)

5) Change in expectations Expectations in technological advancements Expectation of shortages

6) Number of Consumers An increase or decrease in the number of consumers of a given good changes demand

Analyze the relationship b/w price and quantity demanded Study the two graphs attached. What information can we gain from the graphs? What trends do you notice? What do we know about the relationship between price and quantity demanded? Do you notice any discrepancies between the Law of Demand the information about US gas consumption and price? What are they? What do you think might explain this inconsistency?

Elasticity The extent to which a change in price causes a change in the quantity demanded. In other words…if the price of a good increases, how much will the quantity demanded decrease?

Elastic Demand A change in price Inelastic Demand creates a A change in price generally larger does not create change in substantial change quantity in quantity demanded

Elastic or Inelastic?

How did you decide? Can the purchase be delayed? Are there adequate substitutes available? Does the purchase use a large portion of income?

The other half of the equation…Supply.

Supply: the amount of a product that would be offered for sale at all possible prices. The Law of Supply The principle that suppliers will normally offer more for sale at high prices and less at low prices P QS

Change in quantity supplied vs. change in supply

Change in Quantity Supplied A change in the amount offered for sale in response to a change in price

Change in Supply A situation where suppliers offer different amounts of products for sale at all possible prices in the market

What makes this happen? Cost of Inputs Productivity Technology Taxes and Subsidies Expectations Government regulations Number of sellers

Cost of Inputs Labor, packaging, shipping, energy costs, etc…

Productivity Unmotivated, untrained, unhappy employees decreases productivity and vice versa Google Productivity

Technology Introduction of a new machine, chemical, or industrial process.

Taxes and Subsidies Taxes increase cost of production Subsidies decrease cost of production

Expectations about the future price of a product can change supply…if sellers think that the price of their product will go up, they will withhold some of the supply

Government Regulations Increased government regulations restrict supply Relaxed regulations increase supply

Number of Sellers As more businesses and firms enter the economy the number of sellers increases as does supply

Supply Elasticity Measures the way in which quantity supplied responds to price Do these goods have elastic or inelastic supply?