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Relationship Between Demand, Supply and Price. Demand – the quantity of a good or service that consumers are willing and able to buy at a particular price. Law of Demand – as prices decrease, consumers buy more, as they increase consumers buy less.
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Relationship Between Demand, Supply and Price. Demand – the quantity of a good or service that consumers are willing and able to buy at a particular price. Law of Demand – as prices decrease, consumers buy more, as they increase consumers buy less.
There are several conditions that create a demand for a good or service: • Consumer must be interested or aware of it. • Enough of it must be available. • The price must be reasonable and competitive. • It must be accessible to the consumer.
Factors that increase or decrease demand: • Changing Consumer Income – usually an increase in income means people buy more. • Changing Consumer Tastes – people demand what is in fashion.
Changing Future Expectations – if prices are expected to increase consumers may purchase more now. • Changes in Population – more people equals more demand and as a segment of the population increases certain things increase in demand. (Seniors)
Supply – the quantity of a good or service that businesses are willing to provide at a particular price. Law of Supply – as prices decrease, producers supply less and as prices increase producers supply more.
There are several conditions that affect the supply of a good or service: • The cost of producing it. • The price consumers will pay.
Factors that increase or decreasesupply: • Change in the Number of Producers – more producers increase supply. • Changes in Prices – a price decrease will cause a reduction in supply. • Changes in Technology – reduces the cost of production and increases supply.
Changing Future Expectations – producers have to predict demand and adjust supply to it. • Changing Production Costs – lower cost resources means you can supply more goods for the same cost.
DEMAND AND SUPPLY GRAPHS Consumers buy more as prices decrease – this can be shown with a demand curve.
Suppliers provide more as prices increase - this can be shown with a supply curve.
The point at which the supply and demand curves meet is the equilibrium price. Complete supply and demand worksheet.
Price Demand 25 15 Quantity Demand • At the price of $25, the quantity demanded = 15.
Price Demand 25 10 15 30 Quantity Change in Quantity Demanded • A change in the quantity demanded is a movement along the demand curve. Caused by a price change. • When price falls to $10, the quantity demanded increases to 30.
Price Demand New Demand 25 15 25 Quantity Increase in Demand • An increase in demand is a rightward shift in the entire curve. • More is demanded at every price. • At the price of $25, the quantity demanded = 25 after the increase. • Caused by something other than a price change
Price Demand 25 New Demand 10 15 Quantity Decrease in Demand • A decrease in demand is a leftward shift in the entire curve. • Less is demanded at every price • At the price of $25, the quantity demanded = 10 after the decrease.
Price Supply 25 31 Quantity Supply • At the price of $25, the quantity supplied = 31.
Price Supply 25 25 10 16 31 Quantity Change in the Quantity Supplied • A change in the quantity supplied is a movement along the supply curve. • At the price of $10, the quantity supplied = 16.
Price Supply 25 25 New Supply 31 36 Quantity Increase in Supply • An increase in supply is a rightward shift in the entire curve. • More is supplied at every price. • At the price of $25, the quantity supplied = 36 after the increase.
Price New Supply Supply 25 21 31 Quantity Decrease in Supply • A decrease in supply is a leftward shift in the entire curve. • Less is supplied at every price. • At the price of $25, the quantity supplied = 21 after the decrease.
Inelastic Demand • Quantity demanded does not respond strongly to price changes. • Necessities tend to be income inelastic. • Examples include food, fuel, clothing, utilities, and medical services.
Elastic Demand • Quantity demanded responds strongly to changes in price. • Luxuries tend to be income elastic. • Examples include sports cars, furs, and expensive foods.
Inelastic Supply • Quantity supplied does not respond strongly to price changes. • Examples include gold and tomatoes.
Elastic Supply • Quantity supplied responds strongly to changes in price. • Examples include chicken and ice-cream.
How can consumers respond to price increases for goods and services? • Purchase less. • Use a cheaper substitute. • Delay the purchase. • Do not purchase.
Competition – when two or more businesses try to sell the same type of product or service to the same customer. Direct Competition – is between similar products.
Indirect Competition – is between goods or services that are not directly related to each other.
What happens when competition enters the marketplace? • Gives consumers more choice. • May reduce prices. • Forces businesses to be more efficient. • Improves customer service. • May force businesses out of the marketplace.