Lesson 4 Economics Supply and Demand Supply and

Lesson 4 Economics Supply and Demand

Supply and Demand in a Market Economy Supply and Demand work together in order to set the PRICES of goods and services you BUY and use. In a market economy like the U. S. prices are set by the interaction of supply and demand these forces result from the desires of two groups: CONSUMERS and PRODUCERS.

Demand has 4 parts Amount Willing to buy Able to buy Price People tend to demand MORE when the price is LOW and demand LESS when the price is HIGH.

Supply As the price $ of a good or service goes UP, producers tend to supply MORE. As the price goes DOWN, suppliers tend to supply LESS. Producers tend to supply MORE when the price is HIGH and LESS when the price is LOW.

Equilibrium Price At the EQUILIBRIUM PRICE is where consumers want to buy the same amount of a good or service that producers would be willing to offer.

Surplus and Shortage A surplus tends to cause prices to FALL. A shortage tends to cause prices to RISE. There’s There are TOO many and people DON’T want it. NOT enough of it and people WANT it.

Factors Affecting Demand Number of CONSUMERS Change in consumer income, if people earn more, they’ll BUY more. If consumers earn LESS, they’ll buy LESS. Change in consumer preferences, the product becomes unpopular.

Factors Affecting Supply Number COSTS of SUPPLIERS…COMPETITION! of production **Anything that affects the cost of production also influences supply, as the cost of producing a good or service goes UP, producers supply LESS.

Demand/Supply Schedule for Jordan’s(draw in notebooks) Price Demand (options 100 -500) Price $50/pair $100/pair $150/pair $200/pair $250/pair Supply(options 100 -500)

Demand/Supply Schedule for Jordan’s. Demand Price Supply $50/pair 500 $50/pair 100 $100/pair 400 $100/pair 200 $150/pair 300 $200/pair 200 $200/pair 400 $250/pair 100 $250/pair 500 What is the equilibrium price? At what price(s) are there shortages and surpluses?