1. Demand and Supply
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2. Place a value of each token
Demand and Supply Game
Place a value of each token
Black = 50 cent
Red = 20 cent
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3. Price rises when quantity supplied is scarce and demand increases
Price decreases when quantity
supplied increases and as a result
demand increases
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4. Demand
The amount consumers desire to purchase at various prices at any given time
Demand does not necessarily mean a consumer WILL buy, but refers to a good or service they WOULD LIKE to buy
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5. Effective Demand
Consumers must be willing to buy AND be capable of paying the price set by the supplier
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6. Law of Demand If Price rises – Quantity demanded falls P Q
If Price falls – Quantity demanded rises
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7. Individual Demand Individual Demand Schedule
Lists the different quantities of a good that an
individual consumer is prepared to buy at each
price
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8. Market Demand Market Demand Schedule
Lists the different quantities of a good that all
consumers in the market are prepared to buy
at each price. It is derived by adding together
all the individual demand schedules for the
good
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9. Demand Schedule (Demand for coffee monthly)
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10. Demand Curve
At higher prices, consumers are generally willing to purchase less than at lower prices
Demand curve is said to have a negative slope - downward sloping from left to right
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11. Demand A Point Price per g Market Demand A 20 cent 700 kilogrammes
Price (cent per g)
Demand A
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Quantity (kilogrammes: 000s)

12. B A Point Price per g Market Demand A 20 cent 700 kilogrammes
B cent kilogrammes
Price (cent per g) B A
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Quantity (kilogrammes: 000s)

13. C B A Point Price per g Market Demand A 20 cent 700 kilogrammes
B cent kilogrammes
C cent kilogrammes C
Price (cent per g) B A
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Quantity (kilogrammes: 000s)

14. D C B A Point Price per g Market Demand A 20 cent 700 kilogrammes
B cent kilogrammes
C cent kilogrammes
D cent kilogrammes D
Price (cent per g) C B A
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Quantity (kilogrammes: 000s)

15. E D C B A Point Price per g Market Demand A 20 cent 700 kilogrammes
B cent kilogrammes
C cent kilogrammes
D cent kilogrammes
E cent kilogrammes E D
Price (cent per g) C B A
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Quantity (kilogrammes: 000s)

16. An Increase in Demand D2 D1 P
Price Q1 Q2
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Quantity

17. A Decrease in Demand D2 D1 P
Price Q2 Q1
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Quantity

18. Factors affecting the demand for a good
The Demand Function
Dx = f ( Px, Pog, Y, T, E, G, U)
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19. The Demand Function Dx = f ( Px, Pog, Y, T, E, G, U)
Px = Goods which obey and do not obey the Law of Demand
Pog = Price of Complimentary Goods and Cost of Substitute Goods
Y = Income of consumer
T = Consumer tastes and preferences
E = Consumers expectations regarding future prices
G = Government regulations
U = Unplanned factors
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20. Demand for a good depends on its own price If price rises quantity demanded falls If price falls quantity demanded rises
P 2
P 1
Q 2
Q 1
Quantity Demanded
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21. Demand for a good depends on the price of other goods
Complimentary Goods
Goods which are used jointly. The use of one involves the use of the other - E.g. bread and butter, cars and petrol
Substitute Goods
Goods which satisfy the same needs and thus can be considered as alternatives to each other – E.g. Coke and Pepsi or Tea and Coffee
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22. Complimentary Goods D 1 D 2 D 2 D 1
An increase in price of a complementary good causes the demand for good X to fall
An fall in price of a complementary good causes the demand for good X to rise
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23. Substitute Goods (The Substitute Effect)
An increase in price of a substitute good causes the demand for good X to rise
An fall in price of a substitute good causes the demand for good X to fall
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24. Demand for a good depends on level of income (The Income Effect)
Normal Goods
A normal good is a good with a positive income effect. A rise in income causes more of it to be demanded, while a fall in income causes less of it to be demanded
Inferior Goods
An inferior good is a good with a negative income effect. A rise in income causes less of it to be demanded, while a fall in income causes more of it to be demanded
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25. Normal Goods
D 2
D 1
D 1
D 2
A rise in income causes the demand for a normal good to increase from D1 to D2
An fall in income causes the demand for a normal good to fall from D1 to D2
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26. Inferior Goods
D 1
D 2
D 2
D 1
An increase in income causes the demand for an inferior good to fall from D1 to D2
A decrease in income causes the demand for an inferior good to rise from D1 to D2
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27. Demand depends on Consumer Tastes
If the movement in taste or preferences is in favour of the good it causes an increase in demand which shifts the demand curve to the right
If the movement in taste or preferences is against the good it causes a fall in demand which shifts the demand curve to the left
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28. Movement in Taste
D 2
D 1
D 1
D 2
A movement in taste in favour of a good causes demand to increase
A movement in taste against a good causes demand to fall
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29. Demand for a good depends on the expectations of consumers
Demand for a good will shift to the right if consumers expect:
The price of good X to be higher in the future e.g. property
A scarcity of good X in the future e.g. oil
Their incomes to be higher in the future e.g. promotion
Demand for a good will shift to the left if consumers expect:
The price of good X to be lower in the future
A plentiful supply of good X in the future
Their incomes will be lower in the future
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30. Consumer Expectations
D 2
D 1
D 1
D 2
Demand for Good X will rise if consumers expect higher future prices, scarcity or higher future incomes
Demand for Good X will fall if consumers expect lower future prices, abundance or lower future incomes
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31. Demand for a good depends on government regulations
If the government implement a programme which reduces consumption of a particular product than demand for this good will be affected
E.g. The smoking ban / educational campaign to reduce alcohol consumption.
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32. Government Regulations
Example:
The Smoking Ban
D 1
D 2
If the government implement a policy to restrict consumption demand for Good X will fall
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33. Demand for a good depends on unplanned factors
If there is a sudden heat wave – an unplanned factor – this may result in an increase in demand for sunscreen and a decrease in the demand of home oil
If flash floods occur across the country – an unplanned factor – this may result in an increase in the demand for Wellingtons.
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34. Unplanned Factors
Factors such as weather can effect the demand for goods – e.g. a sudden heat wave would increase the demand for sunscreen
D 2
D 1
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35. Exceptions to the Law of Demand P D
Giffen Goods
Goods of ostentatious consumption
(snob goods)
Goods affected by consumers’ expectations
Addictive Goods
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36. Supply
The quantity of a good that firms are willing to make available over a particular period of time
The supplier determines the level of output it is willing to supply at the prevailing market price
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37. Individual Supply Individual Supply Schedule
Lists the different quantities of a good that an
individual firm is willing to make available at
each price
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38. Market Supply Market Supply Schedule
Lists the total quantities of a good that all
firms in the market are willing to make
available at each price. It is derived by adding
together all the individual supply schedules for
the good
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39. Supply Schedule (supply of coffee monthly)
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40. Supply Curve
At higher prices, suppliers are willing to produce more of a good or service and supply it to the market
Supply curve is said to have a positive slope – upwards from left to right indicating a positive relationship between supply and price
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41. A Supply P Q A 20 100 Price (cents per g) Trudie Murray ©
Quantity (kg’s: 000s)

42. B A P Q A 20 100 B 40 200 Price (cents per g) Trudie Murray ©
Quantity (kg’s: 000s)

43. C B A P Q A 20 100 B 40 200 C 60 350 Price (cents per g)
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Quantity (kg’s: 000s)

44. D C B A P Q A 20 100 B 40 200 C 60 350 D 80 530 Price (cents per g)
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Quantity (kg’s: 000s)

45. E
P Q A B C D E D C
Price (cents per g) B A
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Quantity (kg’s: 000s)

46. Increase in Supply P S1 Sx
Increase Q
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47. Increase/Decrease in SupplySX S1
Decrease
Increase Q
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48. Factors effecting the supply of a good
The Supply Function
Sy = f ( Py, Pr, C, Tch, Tx, N, U)
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49. The Supply Function Sy = f ( Py, Pr, C, Tch, Tx, N, U)
Py = Price of Good Y
Pr = Price of related goods
C = Cost of Production
Tch = State of Technology
Tx – Taxation / Subsidy
N – number of sellers in the industry
U = Factors outside the control of the firm
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50. Supply of a good depends on its own price If price rises quantity supplied rises If price falls quantity supplied falls
P 2
P 1
Q 1
Q 2
Quantity Supplied
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51. Supply of a good depends on prices of related goods
An increase in price of a related good will cause a fall in the supply of Good Y
An fall in price of a related good will cause an increase in the supply of Good Y
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52. Supply of a good depends on the cost of production
Causes of an increase in the cost of production:
A rise in labour costs
A rise in the cost of raw materials
An increase in taxes
A reduction in subsidies
Causes of a decrease in the cost of production:
A fall in labour costs
A fall in the cost of raw materials
A reduction in taxes
An increase in subsidies
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53. Supply of a good depends on cost of production
An increase in the cost of production will cause a fall in the supply of Good Y
An fall in the cost of production will cause an increase in the supply of Good Y
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54. Supply of a good depends on the state of technology
We do not generally discuss a ‘fall’ in technology – we assume any new method of production is an option for a firm
An improvement in the state of technology will cause an increase in the supply of Good Y
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55. Supply of a good depends on the rates of taxation / granting of subsidies
A reduction in taxes will result in a reduction in the cost of raw materials / production and supply will increase.
An increase in subsidies granted to a firm for raw materials / labour employed will result in a reduction in costs and supply will increase
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56. Supply of a good depends on the rates of taxation / granting of subsidies
An increase in the level of taxation / decrease in subsidies will cause a fall in the supply of Good Y
An fall in the level of taxation / increase in subsidies will cause an increase in the supply of Good Y
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57. Supply of a good depends on the number of sellers in the industry
If the number of sellers in the industry decrease (due to rationalisation) than overall quantity supplied will also decrease
If the number of sellers in the industry increase than overall quantity supplied will also increase
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58. Supply of a good depends on the number of sellers in the industry
A decrease in the number of sellers in industry will cause a fall in the supply of Good Y
An increase in the number of sellers in industry will cause a rise in the supply of Good Y
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59. Favourable or unfavourable unplanned factors:
Supply of a good depends on factors outside the control of a firm / unforseen circumstances
Favourable or unfavourable unplanned factors:
Weather conditions e.g. floods or sunshine
Strikes
Shortage of raw materials
Transport failure
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60. Supply of a good depends on factors outside the
control of a firm
S 2
S 1
S 2
S 1
Favourable unplanned factors will cause an increase in supply and a shift to the right
Unfavourable unplanned factors will cause a decrease in supply and a shift to the left
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61. Methodology
Students will be asked to think of three items on their desks and to secretly set a price for each one of them on the index card that will be handed out.
They will then fold their index cards so it can stand upright on their desks
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62. Students will then be instructed to place their items by their price list
Students will then be invited to go ‘shopping’ and check out all the prices in the ‘shop’
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63. How might that effect pricing?
Lead the students into discussion asking questions such as the following:
Now that you can see how other merchants priced their items, how will it effect your pricing of the same item?
Were there some items that would be in high demand because of their low supply?
How might that effect pricing?
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64. Students may want to stock their ‘shelves’ differently after doing some comparison-shopping and seeing the availability of certain items.
Give the students the opportunity to price another 3 items of their choice and discuss their changes and why they were made.
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65. Market Equilibrium
If no interference in the market occurs (by government or other agency) price will eventually settle at the level where quantity demanded equals quantity supplied. This position is called the market equilibrium
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66. Market Equilibrium
Price D1 S2
quantity
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67. Market Equilibrium and Price
If the price on the market is above the equilibrium price, there will be a downward pressure on the price
Quantity supplied will exceed quantity demanded and producers will lower the price to get rid of surplus stock P
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68. Market Equilibrium and Price
If the price on the market is below the equilibrium price, there will be a upward pressure on the price
Quantity demanded will exceed quantity supplied. Scarcity would exist and price would increase P
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69. An Increase in Demand Causes:
A decrease in the price of the good itself
An increase in the price of a substitute good
A fall in the price of a complimentary good
An increase in income (if the good is normal)
A change in taste in favour of the good
Expectations of higher prices in future or scarcity
Favourable unplanned factors
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70. Q2 > Q1 and P2 > P1 Price P2 P1 Quantity Q1 Q2 S 1 D2 D1
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71. A Decrease in Demand Causes:
An increase in the price of the good itself
An fall in the price of a substitute good
A increase in the price of a complimentary good
An fall in income (if the good is normal)
A change in taste away from the good
Expectations of lower prices in future or greater supplies
Implementation of government regulations
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72. Q2 < Q1 and P2 < P1 Price P1 P2 Quantity Q2 Q1 S 1 D1 D2
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73. An Increase in Supply Causes: A fall in the price of a related good
A fall in the cost of production
An improvement in technology
Favourable unplanned factors
A reduction in taxation / granting of subsidy
Increase in the number of sellers in the industry
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74. Q2 > Q1 and P2 < P1 Price P1 P2 Q1 Q2 Quantity S 1 S 2 D1
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75. A Fall in Supply Causes: A rise in the price of a related good
A rise in the cost of production
Unfavourable unplanned factors
An increase in taxation / decrease in subsidies
A decrease in the number of sellers in the industry
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76. Q2 < Q1 and P2 > P1 Price P2 P1 Q2 Q1 Quantity S 2 S 1 D1
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77. Watch the following clip
&vodid=561786&pid=353#
Demand and Supply video
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78. Look at the following website and complete the Economics Challenge
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79. Contact Me
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