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The Laws of Supply and Demand
The Laws of Supply and Demand
Demand
What are the basic laws of supply
and demand?
What causes shifts in the curves
of supply and demand?
What is “supply and demand”?
• Supply and demand is
how economists track
the dividing of
resources & their value
within a society
• Answer:
– If nothing changes, a company will produce a
greater quantity of products when the price for
that good is high. (WHY?)
Supply Curve for Xbox 360
a
$500 S
b
450
c
Price per Xbox
400
e
350
f
300 QuickTime™ and a
decompressor
250
h
200
S
0 30 40 50 60 70 80 90
Quantity Supplied
in Billions of Xboxes per Year
• “P.I.G. T.O.E.S”
– P roductivity (workers, machines, and/or assembly)
– I nputs (Change in the price of materials needed to make the
good)
– G overnment Actions (Subsidies, Taxes, and Regulations)
• Answer:
– If nothing else changes, the demand of a good is
greatest for consumers when the price is low.
(WHY?)
Demand Curve for Xbox 360
D
A
$500 QuickTime™ and a
Price per XBox
decompressor
are needed to see this picture.
B
$450
C
400
E
350
F
300
G
250
H
200
D
0 45 50 55 60 65 70 75
Quantity Demanded
in Billions of Xboxes per Year
• “P.O.I.N.T.”
450
Price per Xbox
400
200
S
0 30 40 50 60 70 80 90
Quantity Supplied
in Billions of Xboxes per Year
400 Xboxs
350
300
250
200
S S
0 30 40 50 60 70 80 90
Quantity Supplied
in Billions of Xboxes per Year
450
Price per Xbox
400
200
S
0 30 40 50 60 70 80 90
Quantity Supplied
in Billions of Xboxes per Year
D
$500
Price per XBox
$450
400
350
Price for Xbox games
300 drops = increase in
demand for Xbox
250 related products =
increase in Xbox
200 demand
D
0 45 50 55 60 65 70 75
Quantity Demanded
in Billions of Xboxes per Year
a sub. good=
decrease in Xbox
$450
demand
400
350
300
250
200 D
0 45 50 55 60 65 70 75
Quantity Demanded
in Billions of Xboxes per Year
D
$500 Decrease in
Price per XBox
consumer income =
$450 less $$$ for luxury
goods = decrease in
400 Xbox demand
350
300
250
200
D
0 45 50 55 60 65 70 75
Quantity Demanded
in Billions of Xboxes per Year
• Many companies
strive to reach
economic
equilibrium
Supply-Demand Market Equilibrium
D S
A a
$500
Price per Xbox 360
450
400
E
350
300
g
250
D
200
S
0 30 40 50 60 70 80 90
Quantity
in Billions of Xbox 360 per Year