Objective—Students will understand the concept of DEMAND AND SUPPLY and the law of demand and law of supply.

DEMAND: The quantities of a product which consumers are willing and able to purchase at various prices.

Please note… If you add the words “…and able…” between “…willing…” and “…to buy…”, so that it reads…”…Willing and able to buy…”, now you have something called Effective Demand. (I might be willing to buy a certain car, but…am I able?)

LAW OF DEMAND: As the price of the product (P) goes down, the quantity (Q) of the product which consumers are willing to purchase goes up, and vice versa.

Or..as a memory aid… hExY&ob=av2ehttp:// hExY&ob=av2e OR..in symbols.. P ^ Q v, P v Q ^ This shows an inverse relationship of P to Q.

Price Effect If the price changes, the law of demand says that the quantity will change. It is NOT a change in demand to have the quantity change when the price changes, it is merely a movement along the curve.

Why does the demand curve slope down and to the right? In other words…why do people tend to buy more of a product at a lower price?

3 possible reasons for “price effect” 1. New Buyer Effect – A lower price lures new buyers into the market. 2. Real Income Effect – At a lower price, it is as though the consumer has more money to spend. 3. Substitution Effect – At a lower price, people will substitute the lower priced product for the higher priced one.

SHIFT FACTORS—the sources of demand The “shift factors” are sometimes called “determinants of demand”. I use a mnemonic of “TIPSCWE”, using the first letters of …

Taste and Preference What people want to buy because of fashion, style, or custom.

Income If people’s incomes increase, they will buy more of what we call “NORMAL GOODS”. If an increase in income causes a decrease in demand, we call that product an “INFERIOR GOOD”.

Population more people, more demand. Fewer people, less demand.

Substitutes prices of a substitute good may affect a good’s demand.

Complements Goods which “go along with” another good will affect that good’s demand.

Wealth A person’s accumulated wealth from past income, if it changes, can affect one’s current demand.

Expectations If a person expects something to go up in price, or to go to a shortage situation, they will buy now. And…the opposite if they think it is going to go down in price, they will wait to purchase.

Supply. is the quantities of the product that producers are willing and able to market at various prices

The Law of Supply states that as the price of the product increases, the quantities that producers are willing to market will also increase. This shows a direct relationship between price and quantity.

Price Effect - supply A change in price causes a change in quantity supplied, not a change in supply. This is known as the Price Effect.

Supply Schedule and Curve A supply schedule is a table showing prices and quantities supplied. A supply curve is a graph showing the data from the supply schedule. The supply curve slopes UP and to the Right.

Shifters… Cost of production – in many ways, the most important shifters. Technology related to production Number of firms Taxes Expectations But…

Supply shifters (Determinants of supply) A Mnemomic? Productivity Indirect tax Number of firms Technology Subsidies Weather Costs of production OR…

PASIFIC- an alternate Demand Shifter memory aid Population Advertising Substitutes (price of) Incomes Fashions and trends Interest rates Complements (price of)

Demand Increase- curve shifts to the right “AT ALL PRICES"

Demand Decrease Note: “at all prices”…

Supply Increase… again..curve moves right

Supply decrease curve moves left…

Both S and D shift…