Supply & Demand

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CLO Students will be able to in writing explain how prices are set in a market economy by using supply and demand graphs.

https://www. youtube. com/watch https://www.youtube.com/watch?v=RP0j3Lnlazs&index=7&list=PL1oDmcs0xTD9Aig5cP8_R1gzq-mQHgcAH

Law of Demand The law of demand states that other factors being constant, price and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.

Law of Supply The law of supply is a fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied. In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes.

Law of Supply & Demand The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of demand (see demand) says that the quantity of a good demanded falls as the price rises, and vice versa.

Create and label a supply and demand graph. Let’s Try it! Create and label a supply and demand graph.

Equilibrium The equilibrium price and quantity in a market is located at the intersection of the market supply curve and the market demand curve

Law of Demand Reasons for the Law of Demand Substitution effect Income Effect Law of diminishing marginal utility

Law of Demand Substitution effect The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives.

Law of demand Income effect the income effect is the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service. The relationship between income and the quantity demanded is a positive one, as income increases, so does the quantity of goods and services demanded.

Law of Demand Law of diminishing marginal utility The Law Of Diminishing Marginal Utility is a law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

5 Shifters of Demand Shifters of demand Taste & preferences Number of consumers Markets open up or close down Price of related goods Almond Milk to Cow’s Milk Income* Normal and Inferior Change in expectation

5 Shifters of Supply Shifters of supply Price of resources Barrel of oil- gasoline Number of producers Factories close Technology Cotton gin Taxes and Subsidies Normal and Inferior Expectations

Shifting Supply and Demand https://www.youtube.com/watch?v=V0tIOqU7m-c