Demand Review

• What is the Law of Demand?

• When Price goes up, Demand goes down

and
• When Price goes down, Demand goes up
 What is a Demand Curve?
• A graph that show change in demand with
a change in price
 What is Elasticity of Demand?
• How much demand changes with a
change in price

• Elastic Demand:
– Demand changes a lot with a change in price
• Inelastic Demand:
– Demand changes very little with a change in
price
When is a demand curve accurate?
• When there is only a change in price.
When non-price factors affect demand it
shifts left or right.
 What are 4 non-price factors that
affect Demand?
1. Change in Income

2. Substitution Effect

3. Complimentary Products

4. Changes in Attitude
 SUPPLY
How business owners adapt to
meet changes in price
 Why do people start businesses?
• Supplier’s Motive:
PROFIT
Def. The difference between the cost to
produce a good or service and the amount it
is sold for.
Ex. It costs $8 to make a pizza (human, natural
and capital resources), I sell it for $10, my
profit is…
$2!!
 Law of Supply
Part 1. As PRICE increases, SUPPLY increases

SUPPLY goes
PRICE goes

Then…
up

up
Part 2. As PRICE decreases, SUPPLY decreases

SUPPLY goes
PRICE goes

Then…
down
down
Explain that to me again please.
• According to the law of supply, suppliers will
offer more of a good at a higher price
• Think about it: If people are willing to pay more
for what I am selling, then I want to make as
much of that product available as possible.
• Ex. The price of pizza goes from $10 to $11, but
it still only costs me $8 to make, I want to make
as many as I can to maximize my profit (make
as much money as I can!)
 Supply Schedule
• A supply schedule is a chart that lists how
much of a good a supplier will offer at
different prices.
 Assumptions of law of supply
• No change in the state of technology.
• No change in the price of factors of production.
• No change in the number of firms in the market.
• No change in the goals of the firm.
• No change in the seller’s expectations regarding future
prices.
• No change in the tax and subsidy policy of the products.
• No change in the price of other goods.
 Exceptions of law of supply
• Auction Sale
• Price expectation of seller
• Agricultural products
• Supply of Labor
 Example of a Supply Schedule
• Market Supply Price per Slices
Schedule for a slice of slice of supplied
pizza: Pizza per day
$.50 1,000
$1.00 1,500
$1.50 2,000
$2.00 2,500
$2.50 3,000
$3.00 3,500
 Supply Curves
• A supply $3.50
curve is a

Price per slice of Pizza

$3.00
graph of the $2.50 Supply
of Pizza
quantity $2.00
supplied of a $1.50
good at $1.00
different prices. $0.50
$0.00
1000 2000 3000
Slices of Pizza Supplied
Per day
 Elasticity of Supply
• Def. The degree to which a change in
price will change supply
Or
• If we change the price, will supply change
a lot or a little?

• Elasticity depends on how easy it is to

change production
 Elastic Supply
• Items that have supplies that are
increased easily are ELASTIC, the supply
will go up/down a lot with a change in
price.

• Ex. CDs, Books, Pizza (all can increase

supply with little difficulty; resources are
easy to come by)
 INELASTIC SUPPLY
• Items that have supplies that are
increased with great difficulty are
INELASTIC, the supply will go up/down
very little with a change in price.

• Ex. Cars (to increase production, need to

build a new factory, hire 100s of workers,
etc.)
• Apples (to increase production, would
have to plant more trees, taking years to
grow and produce apples)
 Change in Supply
• A supply curve is only accurate as long as
there are no changes other than price that
could affect a consumer’s decision
• When factors other than price (non-price
factors) affect the supply curve, the entire
curve shifts to the left or to the right
 Non-Price Factors that effect
Supply
• These factors will cause the supply curve
to shift to the left (less quantity supplied)
or to the right (more quantity supplied)
 Non-Price Factors that effect
Supply
• the number of sellers in a market
• the level of technology used in a good’s
production
• the prices of inputs used to produce a good
• the amount of government regulation, subsidies
or taxes in a market
• the price of other goods sellers could produce
• the expectations among producers of future
prices
How does Scarcity of an item affect
the supply?
• If an item is scarce, then there is little or
no supply

• Ex. Gas (even if price goes up, it is difficult

for oil companies to get more gasoline to
consumers)
How does a Boycott affect supply?
• Supply for a boycotted item increases
because nobody is buying it.

• Ex. During the Montgomery bus boycott,

there was an increased supply of bus
seats because nobody was riding the bus.
 How does the War In Afghanistan
affect supply?
• Increase in supply of war-related
materials. (The military will pay more for
metal, cloth, gas masks, etc. so
businesses increase their supply)
• Increased supply of news
• Decreased supply of certain items.
Ex. Gas