1. Unit 2: Supply, Demand, and Consumer Choice

2. Shortages always exist
Put equilibrium handout in warm up tray. 10/3: Which of the following exist if there is a shortage. (Choose 1)
QD>QS
QS>QD
QS=QD
Shortages always exist

3. Supply and Demand Review
Define the Law of Demand
Define the Law of Supply
What is the difference between a change in demand and a change in quantity demanded?
What happens if price is above equilibrium?
What happens if price is below equilibrium?

4. project Due 10/12/17. Remember you have off the 9th and 10th.
Today we will look at #5 on your project.
Today you will have computer time if you want to make a power point
Elastic/Inelastic: is your product a need (inelastic) or a want (elastic).
Be able to explain. What groups (if any) will think your product or service is more inelastic or elastic

5. Consumers will buy more when prices go down and less when prices go up
THE LAW OF DEMAND SAYS...
Consumers will buy more when prices go down and less when prices go up
HOW MUCH MORE
OR LESS?
DOES IT MATTER?

6. Elasticity shows how sensitive quantity is to a change in price.

7. Inelastic Demand

8. Inelastic Demand
INelastic = Quantity is INsensitive to a change in price.
If price increases, quantity demanded will fall a little
If price decreases, quantity demanded increases a little.
In other words, people will continue to buy it.
20% 5%
A INELASTIC demand curve is steep! (looks like an “I”)
Examples:
Gasoline
Milk
Diapers
Medical Care
Toilet paper

9. General Characteristics of INelastic Goods:
Inelastic Demand
General Characteristics of INelastic Goods:
Few Substitutes
Necessities
Required now, rather than later
20% 5%

10. Elastic Demand

11. Elastic Demand An ELASTIC demand curve is flat!
Elastic = Quantity is sensitive to a change in price.
If price increases, quantity demanded will fall a lot
If price decreases, quantity demanded increases a lot.
In other words, the amount people buy is sensitive to price.
An ELASTIC demand curve is flat!
Examples:
Soda
Boats
Beef
Real Estate
Pizza
Gold

12. General Characteristics of Elastic Goods:
Elastic Demand
General Characteristics of Elastic Goods:
Many Substitutes
Luxuries
Plenty of time to decide

13. 1. Elasticity of Demand Elasticity of Demand-
Measurement of consumers responsiveness to a change in price.
What will happen if price increase? How much will it effect Quantity Demanded
Who cares?
Used by firms to help determine prices and sales
Used by the government to decide how to tax

14. 2. Price Elasticity of Supply
Elasticity of supply shows how sensitive producers are to a change in price.
Elasticity of supply is based on time limitations.
Producers need time to produce more.
INelastic = Insensitive to a change in price (Steep curve)
Most goods have INelastic supply in the short-run
Elastic = Sensitive to a change in price (Flat curve)
Most goods have elastic supply in the long-run
Perfectly Inelastic = Q doesn’t change (Vertical line)
Set quantity supplied