3.02Interpret the theory of supply and demand. Supply vs. Demand Supply- the amount Producers are willing and able to produce and sell. Supply- the amount.

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Presentation transcript:

3.02Interpret the theory of supply and demand

Supply vs. Demand Supply- the amount Producers are willing and able to produce and sell. Supply- the amount Producers are willing and able to produce and sell. - Producers prefer to supply when the price is high. - This is known as a Sellers Market. Example: New CD is released. Producers will produce because consumers are willing to pay full price.

Supply vs. Demand Demand- the Customers willingness and ability to buy the products. Demand- the Customers willingness and ability to buy the products. -Consumers prefer to buy when the price is low. -Consumers prefer to buy when the price is low. - Known as a Buyers Market. Example: Joe makes minimum wage and prefers to buy CDs when they go on sale.

The law of supply Price of a product increases, quantity of supply increases Price of a product increases, quantity of supply increases Price of a product decreases, quantity of supply decreases Price of a product decreases, quantity of supply decreases

The law of demand Price of a product increases, consumer demand decreases Price of a product increases, consumer demand decreases Price of a product decreases, consumer demand increases Price of a product decreases, consumer demand increases

When does surplus occur? When supply exceeds demand. When supply exceeds demand. Can occur when prices are too high Can occur when prices are too high Can Occur when consumers buy competitors product. Can Occur when consumers buy competitors product.

When does shortage occur? -When demand exceeds supply -When demand exceeds supply - Customers purchase products regardless of the price. - May result in customer purchasing a substitute product.

When does equilibrium occur? When supply = demand When supply = demand Producer and Consumer are satisfied on the same price Producer and Consumer are satisfied on the same price

Elasticity is… Elastic demand changes as demand changes Elastic demand changes as demand changes - Example: Cheeseburger Inelastic demand rarely changes as demand changes Inelastic demand rarely changes as demand changes - Example: Gasoline

What might affect elasticity? Availability of substitutes (Coke vs. Pepsi) Availability of substitutes (Coke vs. Pepsi) Brand loyalty (Gatorade vs. Powerade) Brand loyalty (Gatorade vs. Powerade) Price relative to income Price relative to income Luxury vs. necessity (want vs. need) Luxury vs. necessity (want vs. need) Urgency of purchase Urgency of purchase