- According to the law of demand,

quantity demanded and price move in

opposite directions
- We buy product for their utility – the
pleasure, usefulness, or satisfaction they
give us
INTRODUCTION TO DEMAND
One reason the demand curve slopes downward
- In the United States, the forces of supply is due to diminish marginal utility
and demand work together to set prices
- The principle of marginal utility says that
- Demand is the desire, willingness, and
our additional satisfaction tends to go
ability to buy a good or service
down as we consume more and more
• Supply can refer to one units
individual consumer or the total
demand of all consumers in the To make buying decisions, we consider whether
market (market demand) the satisfaction we expect to gain is worth the
money we must give up.
Demand Schedule
Changes in Demand
- Is a table that lists the various quantities
of a product or service that someone is Change in the quantity demanded due to a price
willing to buy over a range of possible change occurs along the demand curve.
prices

A demand schedule can be shown as points on

graph
Demand curves can also shift in response to the
- The graph lists prices on the vertical axis
following factors
and quantities on the horizontal axis
- The demand curve is the line that - Buyers (# of): changes in the number of
connects these points consumers
- Income: changes in consumer’s income
The demand curve slopes downward
- Tastes: changes in preference or
- This shows that people are normally popularity of product/service
willing to buy less of a product at a high - Expectations: changes in what
price and more at a low price consumers expect to happen in the
future
- Related goods: compliments and
substitutes
BITTER: Factors that affect the demand curve - Increase in Demand shifts to the right (more
demanded at each price)
Prices of related goods effect on demand

- Substitute Goods
• A substitute is a product that can INTRODUCTION TO SUPPLY
be used in the place of another
Supply
• The price of the substitute good
and demand for the other good - Refers to the various quantities of good
are directly related (e.g., coke or service that producers are willing to
price) sell at all possible market prices
- Complementary Goods - Can refer to the output of one producer
• A compliment is a good that or to the total output of all producers in
goes well with another good the market (market supply)
• When goods are complements,
Supply Table
there is an inverse relationship
between the price of one and - A table that shows the quantities
the demand for the other (e.g., producers are willing to supply at various
peanut butter) prices

- A supply schedule can be shown as

points on graph:
• The graph list prices on the
vertical axis and quantities on
the horizontal axis
• Each point on the graph shows
how many units of the product
or service a producer (group of
producer) would willing sell at a
particular price
• The supply curve is the line that
connects these points
- As the price for a good rises, the quantity
demanded falls. As the price falls, the
Changes in any of the factors other than price quantity supplied falls and the quantity
causes the demand to shift either: demanded rises
- The law of supply holds that producers
- Decrease in Demand shifts to the left (less will normally offer more for sale at
demanded at each price) higher prices and less at lower prices
The reason supply curve slopes upward is due to SUPPLY AND DEMAND AT WORK
costs and profit
Markets
Producers purchase resources and use them to
- Brings buyer and seller together
produce output.
- The forces of supply and demand work
- Producers will incur costs as they bid together in markets to establish prices
resources away from their alternative - In our economy, prices form the basis of
uses economic decisions.

Business provide goods and services hoping to Supply and Demand Schedule can be combined
make a profit into one chart

- Profit is the money a business has left

over after it covers its costs.
- Business try to sell at prices high enough
to cover their costs with some profit left
over
- The higher the price for a good, the more
profit a business will make after paying
the cost for resources

Supply curves can also shift in response to the

following factors Surplus
- Subsidies and taxes: government - The amount by which the quantity
encourage production, while taxes supplied is higher than the quantity
discourage production demanded
- Technology: improvements in - Signals that the price is too high
production increase ability of firms to - At that price, consumers will not buy all
supply of the product that suppliers are willing
- Other goods: businesses consider the to supply
price of goods they could be producing - In a competitive market, a surplus will
- Number of sellers: how many firms are not last. Sellers will lower their price to
in the market sell their goods
- Expectations: businesses consider future
prices and economic conditions
- Resource cost: cost to purchase factors
of production will influence business
decisions

STONER: factors that shift the supply curve

- Decrease in supply shifts to the left (less

supplied at each price
- Increase in supply shifts to the right
(more supplied at each price)
Shortage

- The amount by which the quantity

demanded is higher than the quantity
supplied
- Signals that the price is too low
- At that price, suppliers will not supply all
of the product that consumers are
willing to buy
- In a competitive market, a shortage will
not last. Sellers will raise their price

When operating without restriction, our market

economy eliminates shortages and surpluses.

- Over time, a surplus forces the price

down and a shortage forces the price up
until supply and demand are balanced
- The point where they achieve balance is
the equilibrium price. At this price,
neither a surplus nor a shortage exists.

Once the market price reaches equilibrium, it

tends to stay there until either supply or demand
changes

- When that happens, a temporary

surplus or shortage occurs until the price
adjusts to reach a new equilibrium price