1. Supply and Demand Produced by J.R.

2. Table of Contents Overview of Supply and Demand Overview of Supply and Demand Demand, its definitions and subspecies Demand, its definitions and subspecies Supply, what it is and yada yada… Supply, what it is and yada yada… Subsidies Subsidies

3. So What Is S and D? A simple economic model based on the idea that people act out of their own self- interest A simple economic model based on the idea that people act out of their own self- interest First introduced by Alfred Marshall in Principles of Economics, published in 1890 First introduced by Alfred Marshall in Principles of Economics, published in 1890 Not written of by the brilliant economists Smith, Mills or Malthius Not written of by the brilliant economists Smith, Mills or Malthius

4. What is Demand? The amount of good that people (or consumers) are willing and/or able to buy (or consume)

5. What is Utility? Utility = How much satisfaction a consumer gets from consuming, using or abusing a good or service Utility declines the more there is of something

6. What Influences Demand? The price of the good The price of the good The consumers income The consumers income If people want/like the goods If people want/like the goods Fashion Fashion Amount of substitutes (copies of good) Amount of substitutes (copies of good) Demand for goods used at the same time Demand for goods used at the same time The Sheep effect, celebrities, friends etc are wearing/buying/using etc the good The Sheep effect, celebrities, friends etc are wearing/buying/using etc the good

7. What Makes A Demand Curve Change? Price never shifts a demand curve Price never shifts a demand curve A fall in quantity, as in Q1 – Q2 can be called a contraction in demand. A fall in quantity, as in Q1 – Q2 can be called a contraction in demand.

8. Where a Curve can Shift A demand curve can shift if there is a change in its customers. A demand curve can shift if there is a change in its customers. If there is a change in income, taste, fashion or etc then… If there is a change in income, taste, fashion or etc then… The Curve Shifts The Curve Shifts

9. What is Supply? The amount of a good that vendors are willing and/or able to sell at any given price

10. What Influences Supply? The price of the good The price of the good The amount of competitive goods or look-alike products The amount of competitive goods or look-alike products The cost of making the good The cost of making the good The amount being produced The amount being produced Unforeseen events (earthquakes, strikes, another gold rush…) Unforeseen events (earthquakes, strikes, another gold rush…)

11. Looking at Supply Curves Changes in price never shift the supply curve Changes in price never shift the supply curve Increase in quantity from Q1-Q2 is called an expansion in supply Increase in quantity from Q1-Q2 is called an expansion in supply

12. Supply Curves Shift Only… If there is: A change in costs A change in costs A change in the number of goods A change in the number of goods An unforeseen event (earthquake…) An unforeseen event (earthquake…) Increase in supply shifts curve to right

13. Putting the Curves Together

14. The Area in-between the two curves around where the P and Q lines collide is the equilibrium. The Area in-between the two curves around where the P and Q lines collide is the equilibrium. If the price is too high (well above equilibrium) then there is excess supply If the price is too high (well above equilibrium) then there is excess supply If the price is too low (well below equilibrium) then there is excess demand If the price is too low (well below equilibrium) then there is excess demand Excess supply drives prices down, excess demand drives prices up Excess supply drives prices down, excess demand drives prices up

15. Subsidies A subsidy, free money given by the government to an industry, makes the industry want to produce more of a good. Thus pushing down the supply curve. A subsidy, free money given by the government to an industry, makes the industry want to produce more of a good. Thus pushing down the supply curve. Prices falls by less than subsidy, industry keeps money Prices falls by less than subsidy, industry keeps money

16. Conclusion Supply and Demand is a simple economic model that just makes sense when looking at human nature Supply and Demand is a simple economic model that just makes sense when looking at human nature The goods that there are the least of are usually the most valuable The goods that there are the least of are usually the most valuable Once there becomes a lot of something then the price usually moves down Once there becomes a lot of something then the price usually moves down Dont sweat it, just think baseball cards Dont sweat it, just think baseball cards

17. If you want the exact link to learn more, or review go to: http://www.bized.ac.uk/stafsup/opti ons/notes/econ207.htm#Heading80