Supply and Demand

Law of Supply
What is the law of supply?
What does the supply curve look
like?
What kind of relationship do price
and quantity supplied have?

Law of Supply
The law of supply states there is a
positive relationship between price
and quantity
If price goes up, there is a higher
quantity supplied

Supply curve

Supply Curve and Supply

Schedule
A supply schedule is table that shows
the quantity supplied at each price
level
A supply curve is a graph that shows
the quantity supplied at each price
level

Supply Schedule

Supply Curve

Factors that Effect the Supply

Curve
Changes in production cost and other
related factors can cause an entire
shift in the supply curve

Production Cost
A shift in supply means a shift in
quantity supplied at every price point
How do you think production cost will
affect the supply curve?

Production Cost
If production costs are favorable
(cost less) the supply curve will shift
to the right
If the cost of cost of prodcution is
lower, companies are inclined to
produce more

Production Cost
The opposite is also true
If production costs increase,
companies will produce less creating
a shift left of the supply curve

Natural Conditions
Favorable natural conditions will
cause a shift right in the supply curve
Poor natural conditions will cause a
shift left; A reduction in supply

Technology
A technological improvement that
reduces cost will shift the supply
curve to the right
A greater quantity will be produced
at any given price
A decline in technology is unlikely

Government Policies
Lower product taxes and less
regulations result in the supply curve
shifting right
Higher product taxes and more cost
regulations cause a leftward shift of
the supply curve

Law of Demand
What is the law of demand?
What does the demand curve look
like?
What kind of relationship do price
and quantity demanded have?

Law of Demand
The law of demand states that a
higher price leads to a lower quantity
demanded
There is an inverse relationship

Demand Curve and Demand

Schedule
Just as supply, a demand schedule is
a table that shows the quantity
demanded at each price
A demand curve is a graph that
shows the quantity demanded at
each price

Factors that Change

Demand
How do you think income affects
demand?

Income
Higher income levels result in an
increase in quantity demanded
causing a rightward shift of the
demand curve
Lower income causes the demand
curve to shift left

Changing tastes or
preferences
How do tastes and preferences affect
demand?

Normal and Inferior Goods

A product whose demand rises when
income rises, and vice versa, is
called a normal good
A product whose demand falls when
income rises, and vice versa, is
called an inferior good. In other
words, when income increases, the
demand curve shifts to the left.

Changes in the Composition of

the Population
A society with relatively more
children will have a greater demand
for goods and services

Related Goods
A substitute is a good or service
that can be used in place of another
good or service
A lower price for a substitute
decreases demand for the other
product.
Example, you can use a tablet
instead of a computer

Related Goods
Other goods are complements for each
other, meaning that the goods are often
used together because consumption of
one good tends to enhance consumption
of the other. Examples include breakfast
cereal and milk; notebooks and pens or
pencils;
If the price of milk increases, the quantity
demanded of cereal will decrease

Changes in expectations about

future prices or other factors
that affect demand
For example, if people hear that a
hurricane is coming, they may rush
to the store to buy flashlight
batteries and bottled water. If people
learn that the price of a good like
coffee is likely to rise in the future,
they may head for the store to stock
up on coffee now

Market Equilibrium
The actual price you see in the world
is a balancing act between supply
and demand.
Supply and demand curves intersect
at the equilibrium price. This is the
price at which the market will
operate.

Now you practice drawing

supply and demand curves

Supply Schedule
Price per slice

Quantity Supplied

$1.00

$2.00

$3.00

$4.00

$5.00

Demand Schedule
Price per slice

Quantity Demanded

$1.00

$2.00

$3.00

$4.00

$5.00

Price per car

Quantity supplied

$40,000

60

$37,000

54

$35,000

50

$32,000

47

$30,00

42

Price per Car

Quantity Demanded

$30,000

60

$32,000

53

$35,000

50

$38,000

46

$40,000

41