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 - Seller’s Market Demand- the Customer’s willingness and ability to buy the products Demand- the Customer’s willingness and ability to buy the products - Buyer’s Market

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? Supply exceeds demand Supply exceeds demand Prices are too high Prices are too high Consumers buy competitor’s product Consumers buy competitor’s product

When does shortage occur? Demand exceeds supply (scarcity) Demand exceeds supply (scarcity) Customers purchase products regardless of the price Customers purchase products regardless of the price

When does equilibrium occur? Supply = Demand 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 Availability of substitutes Brand loyalty Brand loyalty 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