supply-and-demand. in business and consumer

Applied ecoomics 12

1. Understanding the Law of Supply and Demand

2. Introduction to Supply and Demand The law of supply and demand is a key concept in economics. It explains how prices and quantities of goods/services are determined in a market. Let's explore how this works!

3. What is Demand? Demand is the quantity of a good or service consumers are willing to buy at various prices. It reflects consumer preferences and purchasing power.

4. The Law of Demand The law of demand states: as price decreases, quantity demanded increases. Conversely, as price increases, quantity demanded decreases. This creates a downward-sloping demand curve.

5. Understanding the Demand Curve The demand curve shows the relationship between price and quantity demanded. It slopes downward from left to right. Why do you think this happens?

6. What is Supply? Supply is the quantity of a good or service producers are willing to sell at various prices. It reflects production capacity and willingness to sell .

7. The Law of Supply The law of supply states: as price increases, quantity supplied increases. Conversely, as price decreases, quantity supplied decreases. This creates an upward-sloping supply curve.

8. Understanding the Supply Curve The supply curve shows the relationship between price and quantity supplied. It slopes upward from left to right. Can you think of reasons why this happens?

9. Equilibrium Price and Quantity The equilibrium price is where quantity demanded equals quantity supplied. This is the point where the demand and supply curves intersect.

10. Market Equilibrium At equilibrium, there is no surplus or shortage. The market is balanced, and prices are stable. What happens if prices are not at equilibrium?

11. Surplus and Shortage Surplus occurs when supply exceeds demand, leading to lower prices. Shortage occurs when demand exceeds supply, leading to higher prices.

12. Adjusting to Equilibrium Prices adjust to eliminate surplus or shortage. Producers and consumers respond to price changes. This process continues until equilibrium is reached.

13. Real-World Examples Think of examples where you see supply and demand in action. How do prices change in response to market conditions?

14. Factors Affecting Demand Income levels, consumer preferences, and prices of related goods. Expectations of future prices and number of buyers. How might these factors shift the demand curve?

15. Shifts in Demand Demand can shift due to various factors. A rightward shift indicates an increase in demand. A leftward shift indicates a decrease in demand. What factors can cause these shifts?

16. Factors Causing Demand Shifts Changes in income levels. Changes in consumer preferences. Prices of substitutes and complements. Expectations of future prices.

17. Shifts in Supply Supply can also shift due to various factors. A rightward shift indicates an increase in supply. A leftward shift indicates a decrease in supply. What factors can cause these shifts?

18. Factors Causing Supply Shifts Changes in production costs. Technological advancements. Number of sellers in the market. Expectations of future prices.

19. Elasticity of Demand Elasticity measures how much quantity demanded responds to price changes. Elastic demand: large response to price changes. Inelastic demand: small response to price changes. Why is elasticity important?

20. Calculating Price Elasticity of Demand Formula: % change in quantity demanded / % change in price. Elasticity > 1: elastic demand. Elasticity < 1: inelastic demand. Elasticity = 1: unitary elastic demand.

21. Elasticity of Supply Elasticity measures how much quantity supplied responds to price changes. Elastic supply: large response to price changes. Inelastic supply: small response to price changes. Why is elasticity important for producers?

22. Calculating Price Elasticity of Supply Formula: % change in quantity supplied / % change in price. Elasticity > 1: elastic supply. Elasticity < 1: inelastic supply. Elasticity = 1: unitary elastic supply.

23. Consumer Surplus Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. It represents the benefit consumers receive from purchasing a good. How is consumer surplus shown on a demand curve?

24. Producer Surplus Producer surplus is the difference between what producers are willing to sell for and the price they actually receive. It represents the benefit producers receive from selling a good. How is producer surplus shown on a supply curve?

25. Market Efficiency A market is efficient when total surplus (consumer + producer surplus) is maximized. This occurs at the equilibrium price and quantity. Why is market efficiency important?

26. Price Ceilings A price ceiling is a maximum price set by the government. It is usually set below the equilibrium price. Example: rent control. What are the effects of price ceilings?

27. Price Floors A price floor is a minimum price set by the government. It is usually set above the equilibrium price. Example: minimum wage. What are the effects of price floors?

28. Government Intervention Governments intervene in markets to correct inefficiencies. Examples: taxes, subsidies, and regulations. How do these interventions affect supply and demand?

29. Taxes and Subsidies Taxes increase the cost of production, shifting the supply curve left. Subsidies decrease the cost of production, shifting the supply curve right. How do taxes and subsidies impact market equilibrium?

30. Externalities Externalities are costs or benefits not reflected in market prices. Negative externalities: pollution. Positive externalities: education. How do externalities affect market outcomes?

31. Public Goods Public goods are non-excludable and non-rivalrous. Examples: national defense, public parks. Why do markets often fail to provide public goods efficiently?

32. Market Failures Market failures occur when markets do not allocate resources efficiently. Causes: externalities, public goods, information asymmetry. How can government intervention address market failures?

33. Review and Discussion Review key concepts: supply, demand, equilibrium, elasticity. Discuss real-world examples of supply and demand. How do these concepts apply to current economic issues?

34. Conclusion Understanding supply and demand is crucial for analyzing markets. These concepts help explain price changes and market behavior. Continue exploring how these principles apply in various contexts.

35. Activity: Plotting Demand and Supply Curves Draw a graph with price on the vertical axis and quantity on the horizontal axis. Plot a demand curve using hypothetical data (e.g., price: $10, $8, $6, $4, $2; quantity demanded: 2, 4, 6, 8, 10). Plot a supply curve using hypothetical data (e.g., price: $2, $4, $6, $8, $10; quantity supplied: 2, 4, 6, 8, 10). Identify the equilibrium point where the two curves intersect.

36. Activity: Shifts in Demand Consider a scenario where consumer income increases. Predict how this change will shift the demand curve. Draw the new demand curve on the same graph from the previous activity. Discuss how the new equilibrium price and quantity are affected.

37. Activity: Elasticity of Demand Calculate the price elasticity of demand using the formula: % change in quantity demanded / % change in price. Use hypothetical data: initial price $10, new price $8; initial quantity demanded 5 units, new quantity demanded 7 units. Determine if the demand is elastic, inelastic, or unitary elastic. Discuss the implications of your findings.

38. Activity: Government Intervention Consider a government-imposed price ceiling on rent. Discuss how this affects the supply and demand for rental housing. Draw the new supply and demand curves to illustrate the impact. Identify any resulting surplus or shortage.

39. Activity: Real-World Example Analysis Choose a real-world example where supply and demand are evident (e.g., gasoline prices, smartphone market). Research recent changes in prices and quantities. Analyze the factors that caused shifts in supply or demand. Present your findings to the class.