Learning Targets: o I can interpret and label supply and demand ...

Learning Targets:
o I can interpret and label
supply and demand
graphs.
o I can apply the concepts
of supply, demand,
equilibrium, surpluses,
shortages, and scarcity.
Ms. Krawetz, Sept. 2013

Supply and Demand

In economics…
1. What does the term “supply” mean?
2. What does the term “demand” mean?
3. What do you think the concept of “supply
and demand” is about?

1. FREE MARKET ECONOMY
o A completely “FREE” Market Economy is an economy
when buyers and sellers are allowed to transact freely
(buy/sell/trade) based on a mutual agreement on price
without or government intervention such as taxes,
subsidies or regulations
o In a FREE Market Economy, consumers determine the
demand of a product, and sellers see the demand and
make more of the product.

2. What Is SUPPLY…
When producers are willing to
supply or provide a good or service
at different prices.
When business people hope to
make a profit from items or
services produced or provided.
E.g. General Mills makes makes
Cheerios, and Market Pantry produces
a similar cereal.

Definition: Law of Supply
The Law of Supply demonstrates the quantities sold at a certain
price. The supply relationship in blue shows an upward slope. This
means the higher the price, the higher the quantity supplied.
Producers supply more at a higher price because selling a higher
quantity at a higher price increases profit. P=Price Q= Quantity
A, B and C are points on the supply
curve. Each point reflects a direct
correlation between the quantity
supplied (Q) and the price (P).
• At point A, the quantity will be Q1
• At point B , Q2
• At point C, Q3

3. WHAT IS DEMAND?
An individual’s need or desire for a good or service at
a given price.
Individuals are willing to consume more of a product or
service at a lower price.
When the demand is high, competitors see opportunity
in the market to make a profit.
E.g. Flip flops and iPhones are popular items in demand and
consumers desire them.

Definition: Law of Demand
The law of demand states that, if all other factors remain equal,
the higher the price of a good, the less people will demand that
good. As price increase, consumer demand decreases. The demand
relationship in green shows a downward slope
A, B and C, points on the demand curve
downward slope, show the negative
relationship between price and quantity
demanded. A, C & C reflect a direct
correlation between quantity demanded
(Q) and price (P).
• At point A, the quantity demanded will
be Q1 and the price will be P1 at B, Q2.
• The higher the price, the lower the
quantity demanded E.g. (A)
• The lower the price, the more the good
will be in demand E.g. (C)

LAW OF SUPPLY & DEMAND
Definition: The Law of Supply and Demand explains
the interaction between the supply of a resource
and the demand for that resource.
o The law of supply & demand define the effect the supply
of a product and the demand for it has on price.
o If there is a low supply and a high demand, the price will
be high.
o The greater the supply and the lower the demand, the
lower the price will be.
o Questions?

THINK ABOUT IT…
When the Nintendo Wii first came out, it was highly sought
after. The demand was high, but the supply was low.
1) Was the price high or low, when Nintendo Wii first
came out? A. High B. Low
2) Why? Explain your answer above
3) Six months later infer what happened to Wii’s price.
• Think individually and write your answers
• Table Talk --- Share ideas w/table
• Share out --- Share out w/class

4. SUPPLY AND DEMAND GRAPHS
People draw supply and demand graphs
to see the relationship between supply
and demand.
This graph is a visual representation of
supply and demand.
The graph shows changes in a
product’s demand or supply.
Graphs can predict the performance of
the product over time.
Price goes on the LEFT
Quantity is on the BOTTOM

The Daily Demand
Curve for Pizza in Chicago
A Supply Curve shows a
good/service a producer
is willing & able to produce
at different prices.
A Demand Curve shows
an individual’s need/
desire for a good or
service at a given price.
Slide 12

5. WHAT IS EQUILIBRIUM?
o The point that the supply and
demand curve meet or intersect is
known as the equilibrium price.
o Equilibrium is the point of balance
between price and quantity when
there are enough buyers for goods
sold.
o Equilibrium occurs when buyers &
sellers are satisfied with their
respective quantities at the market
price

EQUILIBRIUM: SUPPLY & DEMAND MEET
When a price is above the equilibrium price,
fewer people are willing to buy because the
price is too high.
• When a price is below equilibrium price, many
people are willing to buy the product because
the price is too low. Suppliers may not be able
to make enough money to cover costs.
• DISEQUILIBRIUM is when quantity supplied is not
equal to quantity demanded.

Equilibrium Price (Market Price)

6. PRICES
A price is what we pay when we purchase a
good or service.
Market prices are determined by the buying and selling
decisions of consumers and producers.
The prices of goods and services dictate what products
are developed, made or improved.
When the price is high, demand falls and businesses
START producing fewer goods.
When the price is low, demand rises and businesses
produce more goods to meet the demand.

7. PROFIT
Profit = the difference between the money people
make when they produce and sell a good or
service, and all their costs of production.
People/businesses enter the marketplace in hopes
of making a profit (money).
This ‘profit motive’ encourages people to enter the
marketplace.
The hope of making a profit is the reward for
people who take risks by entering the marketplace.

8. COMPETITION
Competition is good for consumers and business. It keeps
prices low, and the quality and choice of products and
services high.
It promotes innovation to make products different and
better, in ways that consumers want.
Sellers compete to make a profit. If sellers feel they can meet
a need/want, they enter the marketplace.
When sellers make products and competition follows when
others enter the marketplace.
When competition is controlled, prices are higher and there
are fewer choices E.g. -Canada has a few choices for
consumers for cell phone service.

9. SURPLUS
o A SURPLUS is the amount by which the quantity
supplied is higher than the quantity demanded.
o A Surplus signals a price is too high. Consumers
will not buy all of the product suppliers are willing
to supply.
o In a competitive market, a surplus will not last
because sellers will lower their price to sell their
goods. E.g. Sales and clearance items!

9. SURPLUSES AND SHORTAGES

10. SHORTAGES
o A shortage is the amount by which the quantity
demanded is higher than the quantity supplied
o A shortage signals that the price is too low.
o At that price, suppliers will not supply all of
the product that consumers are willing to buy.
o In a competitive market, a shortage will not
last long; sellers will raise their price.

11. SCARCITY *REVISED!
o Scarcity is when something is rare or hard to find like
diamonds, caviar, or oranges in a growing season when a
deep freeze in Florida ruins an entire orange crop.
o When something is scarce, it is available in amounts less
than the total amount wanted to satisfy everyone.
o Oil, gold, diamonds, & iron are tangible scarce items.
Happiness, hope, health & love are intangible scarce
items
o Producers can withhold items to make them “appear”
scarce, to create a “fake” shortage to drive up the price.

12. EXCESS DEMAND and EXCESS SUPPLY
Excess Demand
o When the quantity
demanded is more than the
quantity supplied.
o At excess demand
consumers will have to wait
in long lines or not get the
product they want
o At excess demand, business
should raise the price.
Excess Supply
o When quantity supplied
exceeds the quantity
demanded caused by over
production.
o Producers hoping for a
profit make more in the
hope of selling more at a
higher price?
o We will buy less or buy an
alternative

13. THINK ABOUT IT?
Psychological research suggests that in the long
run, experiences make people happier than
material possessions. Do you agree with this?
Yes or No? Explain your thinking…
• Think individually and write 2-3 sentences
• Table Talk --- Share ideas w/table
• Share out --- Share out w/class