1. Unit 8.3 Demand and Supply Notes- Answers
Complete the Structured Notes as you view the Power Point.

2. Standards: Essential Standards:
CE.E1.2 Analyze a market in terms of economic characteristics, the roles they play in decision- making and the importance of each role
CE.E1.3 Explain how supply and demand determine equilibrium price and quantity produced
CE.E1.4 Analyze the ways in which incentives and profits influence what is produced and distributed in a market system
CE.E1.5 Compare how various market structures affect decisions made in a market economy

3. Unit 8.3: Chapter 21 Demand and Supply Section 1 Demand

4. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1
Demand- desire for a certain item
 Demand Schedule- Table showing the amount of a product a person is willing to buy at certain prices
Demand Curve- graph showing the amount of a product a person is willing to buy at certain prices (moves down)

5. Demand Schedule
Higher the PRICE the lower the DEMANDED

6. Demand Curve
Higher the PRICE the lower the DEMANDED

7. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1
The downward direction of the demand curve shows that consumers are likely to buy more goods and services at lower prices and less at higher prices

8. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1
The curve is drawn with prices on the vertical axis and quantities on the horizontal axis
 When demand goes down, the demand curve moves to the left
When demand goes up, the demand curve moves to the right

9. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1
Law of Demand: Consumers will buy less at higher prices and more at lower prices

10. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1
Market Demand- all consumers’ desire for a certain item
(supermarket- a lot of people; market- a lot of people)
Market Demand Schedule- chart showing the amount of a product all consumers are willing to buy at certain prices
Market Demand Curve- graph showing the amount of a product all consumers are willing to buy at certain prices

11. Poll
What is the Law of Demand?

13. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1
Before opening a business you must know the demand for the area to determine if you have a chance to make money
*don’t open a southern fried chicken restaurant in the middle of a northern Italian neighborhood unless you know they will buy your chicken

14. Unit 8.3: Chapter 21 Demand and Supply Section 2 Factors Affecting Demand

15. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
What causes a change in demand?
Changes in…
Population Income
Tastes Expectations
Price Substitute
Complements

16. Poll
How can an increase in the price of a product influence a substitute product?

18. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
Demand Elasticity- Measure of how a change in price causes a change in the amount demanded (gas prices $.01 increase compared to $.10 increase)
If the price goes up- people will not buy
If the price goes down people will buy
If there is a cheaper substitute for people to buy demand will be elastic
Our purchases expand and contract based on the price

19. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
Inelastic Demand- Price does not influence whether people buy a product or not- medicine, you need it not matter what it cost
necessities are inelastic, luxuries are elastic

20. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
Substitutes- competing products consumers may use in place of the other
(margarine for butter)
A change in price for one causes the demand for the other to move in the same direction
(price of butter goes up, demand for butter falls but the demand for its substitute, margarine, goes up)

21. Poll
What are necessities?
Elastic
Inelastic

23. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
Complements- Products that are used together- ie a computer and a mouse,
Printer and ink cartridge, DVD and DVD player, shoes and laces
Utility- satisfaction from a product or service; varies between people- one may like it, another person may not like it (Dominos v. Papa John’s delivery; cars, TV, hairstylist, anything you buy or receive can vary from one person to the next)

24. Poll
What are luxuries?

26. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
Diminishing Marginal Utility- principle that our satisfaction goes down the more we have of a product or service
ex.- last piece of pizza never as good as the first
Before you buy something you usually weigh your projected diminishing marginal utility in your head- if you feel it will decrease greatly (you will not be satisfied with it for a long time) then you will probably not buy it

27. Poll
Give an example of products that are compliments of one another.

29. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
You might ask yourself…….
Do I really need this pocketbook? Is it big enough? Will the leather wear out? Does it match my clothes?
If those answers are no, you probably will not be satisfied with it for a long time and the “utility will diminish”
Some people say “I don’t care. I want it now and that is all that matters to me right now.” Once they get it home their satisfaction may go down even though they wanted it very badly.

30. Poll
Give an example of a product you bought that had Diminishing Marginal Utility.

32. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2
When the Demand Curve slopes downward because it shows how people are willing to buy less of an item at a high price
*the down slope represents less of a demand for high priced items

33. Unit 8.3: Chapter 21 Demand and Supply Section 3 Supply and the Supply Curve

34. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Supply- the various quantities of a good or service that producers are willing to sell at all possible market prices
Like demand supply can be looked at as
the output for a single business or producer
the supply of all producers added together to get the supply for the entire market

35. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Supply is the opposite of demand
Suppliers offer different quantities of a product depending on the price that buyers are willing to pay
The quantity supplied varies according to price

36. Poll
Why does supply depend on price?

38. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Law of Supply- suppliers will offer more for sale at higher prices and less at lower prices
As the price rises for a good the quantity supplied rises- as the price falls the quantity supplied falls
The incentive for producers to make more at higher prices is the hope of making a high profit

39. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Profit- the money a business receives for its products or services over and above the cost to produce it

40. Poll
What is the Law of Supply?

42. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Supply Schedule- chart showing the amount of a product a business is willing to produce for sale at certain prices

43. Supply Schedule
Higher the PRICE the higher the SUPPLY

44. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Supply Curve- graph showing the amount of a product a business is willing to supply for sale at certain prices (moves up)
The supply curve graph is drawn with prices on the vertical axis and quantities on the horizontal axis
The upward direction of the supply curve shows that suppliers are likely to offer more goods and services at higher prices and fewer at lower prices
When the supply goes down, the supply curve moves to the left
When the supply goes up, the supply curve moves to the right

45. Supply Curve
Higher the PRICE the higher the SUPPLY

46. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Factors that can affect supply:
The cost of resources Productivity
Technology Government Policies
Taxes Subsidies
Expectations Number of Suppliers

47. Poll
How can productivity affect supply?

49. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Supply Elasticity- Measure of how supply changes in response to a change in price
Depends on how quickly a company can change the amount of a product it makes when the price changes- holiday candy
Inelastic Supply- When a company can’t produce more of a product quickly and easily when prices go up- oil

50. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3
Market Supply- the total of all supply schedules of all the businesses that supply the same good or service
Market Supply Curve- graph showing the amount supplied at various prices by all businesses in a certain market
Market Supply Schedule- chart showing the amount supplied at various prices by all businesses in a certain market

51. Unit 8.3: Chapter 21 Demand and Supply Section 4 Demand and Supply at Work

52. Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 4
Surplus- amount that the quantity supplied is higher than the quantity demanded (above equilibrium price)
Shortage- amount by which the quantity demanded is higher than the quantity supplied (below equilibrium price)
Equilibrium Price- the point where supply and demand are balanced

53. Equilibrium Price:

54. Poll
What is the equilibrium price of a good or service?

56. Poll
What is the name of the space above the equilibrium price on a curve (graph)?

58. Poll
What is the name of the space below the equilibrium price on a curve (graph)?