1. Demand – How does it Change?
Intro - What trendy items have you seen that have come and gone in society?
What caused them to arise?
What caused them to disappear?

2. What is Demand?
Quantities of a particular good or service that people are willing and able to buy at different possible prices.

3. The Law of Demand
Consumers buy more of a good when its price decreases and less of a good when its price increases.

5. Hudsucker Proxy Clip What caused this shift in demand?
Is this reliable if you are starting a business?
How can we better guarantee a successful business?

6. GRAPHING DEMAND Draw this large in your notes Demand Schedule
Price of Cereal
Draw this large in your notes $5 4 3 2 1
Price
Quantity
Demanded $5 10 $4 20 $3 30 $2 50 $1 80 o Q
Quantity of Cereal

7. GRAPHING DEMAND Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2
Quantity
Demanded $5 10 $4 20 $3 30 $2 50 $1 80
Demand o Q
Quantity of Cereal 7

8. Shifts in the Demand Curve

9. Shifts in the Demand Curve
Changes in Income (the income effect)
Examples?

10. Shifts in the Demand Curve
Prices or availability of substitutes (The substitution effect)
A substitute is a good/service that can be used in place of another.

11. Shifts in the Demand Curve
Prices or availability of complementary goods.
Complimentary goods are things that are often sold or used together.

12. Shifts in the Demand Curve
Changes in the number of buyers.

13. Shifts in the Demand Curve
Changes in preference, tastes, and technology.

14. What is supply?
Supply: The amount of a product that is offered for sale at all possible prices in a market.

15. The Law of Supply
The Tendency of suppliers to offer more of a good/service at a higher price and less of that good/service at lower prices.

16. The Supply Curve

17. So…

18. Factors of Supply
Costs of inputs (factors of production)

19. Factors of Supply
Changes in productivity.

20. Factors of Supply Change of the number of sellers in a market.
More sellers in a market = increased supply
Less sellers in a market = decreased supply

21. Intro Question -
What do you think would happen if the government placed a price cap (maximum price) for the sale of gasoline?
Let’s say they force companies to sell for no more than $1.00 per gallon.

22. The Best Price!
The equilibrium price is the best price where supply and demand intersect.
This is the point where suppliers and consumers are in perfect harmony.

23. Supply and Demand are put together to determine equilibrium price and equilibrium quantity
Supply Schedule
Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 D o Q 23

24. Equilibrium Price = $3 (Qd=Qs) Equilibrium Quantity is 30
Supply and Demand are put together to determine equilibrium price and equilibrium quantity P
Supply Schedule
Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10
Equilibrium Price = $3 (Qd=Qs) D o Q
Equilibrium Quantity is 30 24

25. What if the price increases to $4?
Supply and Demand are put together to determine equilibrium price and equilibrium quantity
What if the price
increases to $4? P
Supply Schedule
Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 D o Q 25

26. How much is the surplus at $4?
At $4, there is disequilibrium. The quantity demanded is less than quantity supplied. P
Supply Schedule
Demand Schedule S $5 4 3 2 1
Surplus
(Qd<Qs) P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10
How much is the surplus at $4?
Answer: 20 D o Q 26

27. How much is the surplus if the price is $5?
What if the price
decreases to $2? P
Supply Schedule
Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10
Answer: 40 D o Q 27

28. How much is the shortage at $2?
At $2, there is disequilibrium. The quantity demanded is greater than quantity supplied. P
Supply Schedule
Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10
How much is the shortage at $2?
Answer: 30
Shortage
(Qd>Qs) D o Q 28

29. How much is the shortage if the price is $1?
Supply Schedule
Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10
Answer: 70 D o Q 29

30. The FREE MARKET system automatically pushes the price toward equilibrium.
Supply Schedule
Demand Schedule S $5 4 3 2 1
When there is a surplus, producers lower prices P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10
When there is a shortage, producers raise prices D o Q 30

31. Price Controls Price Ceiling Price Floor
Price controls are usually enacted when policymakers believe the market price is unfair to buyers or sellers.
Price Ceiling
A legally established maximum price at which a good can be sold.
Price Floor
A legally established minimum price at which a good can be sold.

32. Binding Price Ceiling

33. Price Ceilings What are price ceilings?
What if there are price ceilings on a product? (perhaps gas?)
What can that company do to fight the shortage, without raising prices, so they aren’t faced with losses?

34. In a small group: One person writes on one paper for the group.
Make sure every group member is included on the paper.
If gasoline was going through a shortage, what would you do if you were in charge of the government?
Create a price ceiling to prevent gas from being too expensive
What would you do to combat the shortage?
Allow the price to skyrocket
How would you care for those who could no longer drive?