Supply and Demand How the world really works!!!!

Demand The amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period How much are you willing to pay to go back stage to see your favorite band? How much are you willing to pay for an almost new Apple 2c computer from 1989?

Law of Demand An increase in a good’s price causes a decrease in the quantity demanded A decrease in a good’s price causes an increase in the quantity demanded Inverse relationship

Determinants of Demand Consumer tastes and preferences Market size Income Prices of related goods Consumer expectations

Consumer Tastes and Preferences Fashion, foods, music, cars, entertainment, etc. are always changing in their popularity. When people change their minds about what they like, they change what and how much they demand.

Change in Market Size More consumers = more demand Fewer consumers = less demand Advertising can increase the number of people who want to purchase something New technology can make people want a new gadget

Change in Income More money = more demand –If you get a raise, you are going to demand more stuff. Less money = less demand –If you get laid off, you are going to want demand less stuff.

Prices of Related Goods Substitute Goods Goods that can be used to replace others when prices rise Generic brands rather than name brand Kroger brand rather than Campbell’s soup Complementary Goods Goods that are commonly used with others –increase in price of one will lower demand for the other Paint and paint brushes Peanut butter and jelly

Consumer Expectations Demand shifts by the expectations you have of your future income Company announces layoffs Decide not to buy a new family car Boss announces you will be getting a raise Decide to buy an ipod

Supply Quantity of goods and services that producers are willing to offer at various possible prices during a gi.ven time period If a singer has a new hit song –How many copies is Best Buy willing to sell? Gas prices go to $4.00 per gallon, how much gas is a gas station willing to sell?

Determinants of Supply Prices of resources Government tools Technology Competition Prices of related goods Producer expectations

Price of Resources Resource – anything used to produce something –Wages, raw materials, electricity, etc. Price of resource falls, cost of production falls and supply goes up If the price of gas goes down, are you more willing to go on vacation?

Government Tools Taxes – required payment to fund government –Discourage production because they increase cost of making things Subsidies – encourage to produce more because reduces cost of making things Regulation – designed to prevent problems –Reduces production because increases costs

New Technology New technology makes production more efficient and less expensive What happens when robots are used instead of humans in a factory? What impact does a washer/dryer, dishwasher and microwave have on your family?

Increase in Competition More competition increases supply Less competition decreases demand Think about 47 th and Broadway. How many restaurants are within ½ mile of that area? Is more food produced there than at the corner of 55 th and Meridian?

Price of Related Goods Price of a related good can increase or decrease the supply of the good Price of wheat drops so farmers decide to plant corn instead Farmers around here are planting cotton rather than wheat because they make more money on cotton.

Producer Expectations Companies make current production decisions based on expected future income. Nike signed LeBron James to a multi- million dollar contract before he played one NBA basketball game. At 4:45pm, Burger King will start making more hamburgers than they do at 3:00pm.