Unit 2: Ch.

4 Demand
In order to have demand..

Producers must be willing to _________ the product at a particular

price

People must have an ____________ to buy a product,

People must have a ________________________ to buy a product

Law of Demand

As price goes up, Quantity Demanded goes ______________

As price goes down, Quantity Demanded goes ______

They are ___________________ proportional!

They move in opposite directions!

Marginal Utility

the extra ______________________ or ________________________ a person gets

from acquiring or using __________ more unit of a product

Remember from unit 1!!

_______________________: the extra benefit associated with the addition of one

or more units

_______________________: the extra cost associated with the addition of one of

more units

________________________________________: the decrease in satisfaction or

usefulness received from each additional unit of a product
When will somebody stop consuming?
When MC > MB?

Or

When MC < MB?

Demand Schedule
Price

Slices

1.00
2.50
4.00

A _________________ that lists

the quantity of a good people
would buy at different prices.

Demand

The quantity that will be purchased* at all possible prices.

Quantity Demanded

________________ on the demand line that shows how much of a good or

service will be purchased at that certain _____________.

Quantity Demand & Price

Quantity demanded and price move in the ____________________
directions... They are not proportional
- This relationship is known as ____________________________________

Movement on a Demand Curve

A change in ____________________________ is always the result of a change of

___________!

Movement is _______the curve. (dot changes and moves up or down)

Price
going
down

Price
going up

Determinants of Demand (factors that shift the demand curve left or right)

Factors affecting how much people will buy of any product at a particular
price.
_______________________________
__________________
____________________________________________
____________________________
____________________________

Mnemonic to help you remember

Expectations

Expectations about future prices can shift demand (future

expectations change how you buy today)

Only determinant that can be used for demand or supply.

Demand Curve Shifts

A change in Demand can be the result of one of the determinants of demand

changing

This Movement is a shift ______the curve. (Not on movement on the

curve)

Demand

Demand

Population (or # of consumers)

A increase in population will ________________ demand for most normal goods.

A decrease in population will ________________ demand for most normal goods

Income

A consumers income affects his or her demand for most goods.

Normal Goods - As your income increases you buy __________ of

these

Inferior Goods - As your income increases you buy ________ of

these

Example: Ramen Noodles, Hotdogs

Taste and Preference

Social trends, __________, ___________________________ and mass media may

change demand. (anything that causes you to change your view on a
product)

Compliments
Goods that are bought and used ________________________.
A price change of one complementary good can affect the demand
for the other.

Peanut Butter and ___________

Substitutes
Goods that are used in place of one another:
A price change of a substitute can affect the demand for the other.

Butter or ______________.

Coke or P________.

Hotdogs or ________________________

Your problem solving process

1. What is the demand for? (what product or service are we talking
about?)
2. Is there a price change for _____________________?
- If so the movement is on the curve, up or down (change in Qd)
3. If there is no price change.. Figure out what determinant will
cause the curve to shift and shift the curve right or left.
Example 1
Twinkies sales are down due to the health craze so they drop the price by 25
cents per pkg.
Demand for: ______________________
Quantity Demanded (price)
Increases
Decreases
Curve Shift
Left

 Right
Reason: ________________

Example 2
You run a video rental store and UGA Students have just left for the summer.
Demand for: ______________________
Quantity Demand
Increases
Decreases
Curve Shift
Left
Right
Reason: ________________
Example 3
A hurricane is about to hit Texas and wipe out oil refineries in the Gulf of Mexico.
The market is gasoline?
Demand for? ________________
Quantity Demand (price change)
Increases
Decreases
Curve Shift
Left
Right
Reason:_________________
Example 4:
Draw a demand curve for music downloads. What happens to it in each of
the following scenarios? Why?
A.

The price of iPods falls

B.

The price of music downloads falls

C.

The price of CDs falls

A.

B.

C.

Elasticity

___________________: The measure of sensitivity of one variable to

another.

_____________________________________ measures the sensitivity of

quantity demanded to price changes.

__________________ - If people respond to a price increase by buying

less the good can be considered elastic.

(responsive to a change in price)

___________________- If people do not respond to a price increase (do

not buy considerably less) the good can be considered inelastic

(not responsive to a change in price).

Inelastic Goods
Very few ________________________
Necessity or ________________________
Strong brand loyalty
Usually not too expensive (rare purchases)
Elastic Goods

Many ______________________ available

An item that is not a necessity

Change over Time - Demand sometimes becomes more elastic over

time because people can eventually find substitutes.

Other things that effect Elasticity

Relative importance

The more you spend on an item.. The more elastic

The less you spend on an item The more inelastic

Unit Elastic

A change in price causes a _______________________________ change in the

quantity demanded
**Remember N.I.L.E.**

Needs are ______________________

Luxury Goods are _______________________

Unit Elastic (draw what curve looks like)

Elastic (draw what curve looks like)

Inelastic (draw curve)

(draw curve)

Examples:

Elastic (flat curve)

Types of food

Types of clothing

Inelastic (steep curve)

gasoline

Perfectly Elastic

Perfectly Inelastic

medical products

insulin

Unit 2 Ch. 5 Supply

Supply - The willingness and ability to provide goods and services at different
prices
Law of Supply
Generally:
as price rises; the quantity supplied ______________.
as price falls; the quantity supplied _______________.
Supply
The amount of goods available in a market.
*Based on what products people are willing & able to produce*
Draw Curve below

Quantity Supplied
The amount a supplier is willing and able to supply at that certain price. (a
specific quantity)
Draw Curve

Change in quantity supplied is always due to a change in ___________________!

Show a change in quantity supplied as price changes from $1.00 to $2.00.

Individual Supply Schedule

A _________________ that lists the quantity of a good supplied at a certain
price.

Price

Slices

1.00
2.75
4.00

Market Supply Schedule

A __________________ that lists the quantity of a good all producers in a
market will supply at a certain price.
Price

Slices

192

435

680

1.00
2.75
4.00

Supply Curve
Always rises from left to right.
Like climbing a hill.
Individual Supply Curve

Market Supply Curve

Supply Curve Shifting

Shifting of the supply curve is caused by the determinants of supply

Supply
43 Curve
21
Shift
200
400
600
Right

Supply
$432 Curve
1200
Shift
400
600
Left

Factors that shift the Supply Curve ( increase or decrease of a good at all
possible prices)
________________________________________
________________________________
________________________________
_____________________________
_______________________
_______________________________
_______________________________
# of Firms selling (also called Number of sellers)
Firms entering or exiting the marketplace will affect the supply for most
products.
An increase in firms will __________________ supply.
A decrease in firms will ___________________ supply.
Example: Market is Pizza. Two new pizza places open in Cumming. (Two
firms enter the market). What happens to the supply of pizza?
Draw curve with shift.

Input Costs
Q
Any ____________ that goes into making a good
Two types of costs
_____________Costs ( rent ect.)
___________________ Costs ( cost of resources used ect.)
As costs go up for your business (input costs), supply will decrease (shift left)
As cost go down for your business (input costs), supply will increase (shift
right)
Market is Pizza. Flour prices increase and it now costs more to produce
pizza. What happens to the supply of pizza?
Draw graph with movement.

Technology
Advances in technology always cause an ________________________ in supply.
New improved pizza oven will ____________________ production of pizza..
New improved machines produce goods faster than previously..
Market is Pizza. A new crust maker allows 1 employee to make twice as many
pizzas as before in the same amount of time.
Draw supply curve movement..

Subsidies
Government __________________ to producer
Often subsidies are offered to enable firms to offer goods at a certain price.
Example - ____________________________________, offset the losses for
farmers when they sell their farming products at a very cheap price
Examples: Milk, Corn
The government pays dairy farmers $.25 for every gallon of milk they
produce.
Draw curve movement

Taxes
Taxes usually make things more expensive for a business.
Examples: Taxes on resources used to make a product, taxes placed on start
up costs ect

The market is Ford Vehicles. The government adds a new tax on all
foreign steel, including that used by Ford for their vehicles. What
happens to the supply of Ford Vehicles?
Draw Curve Shift.

Regulations

 Regulations affect how goods are produced or what they are made out of.
Often result in an ______________________ in costs and a
____________________________ in supply.
Examples:
-_________ (Environmental Protection Agency)
-Gas Mileage on cars
-Regulations on pollution.
The market is U.S. made cars. A new law states by 2017 all cars and
trucks must have a minimum gas mileage of 25mpg. What happens to
the supply of U.S. cars?
Draw Curve Shift
Expectations (Future Price Expectations)
What business owners expect to happen in the future will affect supply today.
(Future Expectations)
For consumers (demand) & Suppliers (supply)

Market is homes for sale. You and many other home owners are thinking of selling.
Economists predict that home values will increase dramatically after the next 6
months. What happens to homes on the market 7 months from now?
Draw graph with curve shift.

Supply Curve Movement Explained

http://www.youtube.com/watch?v=JiGhGzCL7Js

Elasticity of Supply

__________________________________________ How sellers react to a change in

their products prices
_____________________ Sellers react to a price change by selling way more
or way less
__________________________ Sellers do not react to a change in their products
price
Changes in Supply
Long Run
In the long term companies_____________ the ability to react to changes in
price by increasing or decreasing their output
Short Run
In the short run companies dont have the ability to react to price changes or
their product.

Elasticity of Supply
Supply is _______________________in the short run. In the short term little
change is possible.
Draw short run supply curve

Supply is _______________________in the long run. In the long run change

will occur.
Draw long run curve

Products that can be made very easily generally are more _____________
Example: paper clips
Products that are difficult or time consuming to make, generally are more
_____________
Example: airplanes
Supply Practice
The market is electricity. The price of electricity rises. (Draw graph)

The market is pizza. The price of electricity rises. You own a pizza shop.
(Draw graph)

Market is cell phones. Reports link cell phone use to cancer the US government
requires all cell phone companies to do extensive testing on all their cell phones.
(Draw curve)

The market is polio vaccines. The company who makes the Polio Vaccine gets a
subsidy from the US government to keep making it. (Draw curve)