Supply and Demand Economic definitions for DEMAND n
- Slides: 23
Supply and Demand
Economic definitions for DEMAND n Demand: the total amount consumers are willing and able to buy at all prices.
n Demand curve: the graphical representation of what consumers are willing and able to buy.
Hunter’s Clothing Store is trying to set a price for a new pair of jeans. How do we determine the “best” price where the customers and Hunter will be happy? Selling Number Demanded Price $10. 00 510 $20. 00 420 $30. 00 320 $40. 00 240 $50. 00 150
n Law of Demand: As price increases/decreases, quantity demanded decreases/increases. P Q
Factors that cause demand to change or shift n Tastes and fads n Income n Number of buyers n Future price expectations n Price and availability of: ¨Substitutes ¨compliments
IRDL “IRDL” will help you! n INCREASE = RIGHT n DECREASE = LEFT
n Inelastic Demand: Price still moves up and down but Demand stays the same
Economic definition for SUPPLY n Supply: the total amount of a good or service producers are able to make at all prices.
n Supply curve: the graphical representation of a good or service producers are able to make at all prices.
n Law of Supply: as price increases/decreases, quantity supplied increases/decreases P Q
Hunter’s Clothing Store is trying to set a price for a new pair of jeans. How do we determine the “best” price where the customers and Hunter will be happy? Selling Number Supplied Price $10. 00 0 $20. 00 86 $30. 00 179 $40. 00 272 $50. 00 365
n Equilibrium Point: the point at which the quantity & the price are equal
Economic Equilibrium n Equilibrium is the market clearing price and involves the most efficient choice ¨ Producers and consumers make the most of their limited resources at the least cost ¨ Therefore, producers and consumers act in their own economic self-interest when moving towards equilibrium n At this point the number demanded equals the number supplied
At what price should Hunter’s sell their jeans? $60 supply $50 $40 Price $30 $20 $10 equilibrium 100 200 Units 300 400 demand 500
Shortage and Surplus n Shortage occurs when a good or service is priced below the market clearing price ¨ Supply n < Demand Surplus occurs when a good or service is priced above the market clearing price ¨ Supply > Demand
Shortage and Surplus n Both surplus and shortage are inefficient ¨ Both involve missed profit
P 2 Surplus Shortage P 3
Factors that cause a change in supply: n Price of land, labor or capital n Technology n Number of other sellers n Price of other goods I could produce n Tax policy
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