Supply and Demand

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Supply and Demand Why does the newest Ipad model cost almost $700 dollars but in six month they will cost only $400? The price of an Ipad is determined by how many are made available (the supply) by the company as well as the amount demanded for the product by the consumer (the demand). It is this combination of supply and demand that determines the price of all goods or services. The Law of Demand The process for determining the price of a good starts with the consumer’s (people that buy goods and services) demand for a good. Demand is simply the amount of a good or service that consumers are willing to buy. The law of the demand says that consumers are willing to buy more of something (a good and service) when prices go down. For instance, more people are willing to buy an Ipad when the price for the Ipad drops. When a good becomes cheaper, people see it as a deal and will want or demand more. The more the price drops, the bigger the demand for the good. The opposite is true when the price of something goes up; people see it as expensive and are less likely to buy it. Answer each question with a complete sentence on a separate piece of paper. 1. How is the price for an Ipad or any good determined? What does Demand Look Like on a Chart and Graph? 2. Who are consumers? 3. What does demand mean? 4. What does the law of demand say? 5. If the price of a good or services increases what will happens to the demand for it? © 2015 Michael Powell, All Rights Reserved

Page 1 (Reading Comprehension)

Interestingly, the law of demand can be shown with a chart and a graph. Below is a demand schedule chart for Ipads, which shows what the demand for the good would be at a certain price.

Demand Schedule for Ipads Price for One Ipad If the price of an Ipad is $1000

Demand for Ipads 5 people would demand it

$800

10

$600

15

$400

20

If you look at the demand schedule, you can see that as the price of Ipads decrease, demand for them increases. This demand for the Ipad can be graphed and seen in a demand curve below.

This is the demand curve, which shows the demand for the good at different prices.

© 2015 Michael Powell, All Rights Reserved

Page 2 (Reading Comprehension)

When you look at the demand curve graph for Ipads, you will see that if Ipads cost $1000 then people well only demand 5 Ipads. If prices of the Ipad decreases to $400 then 20 people will demand an Ipad. Therefore, in this trend, one can see the law of demand taking place, “as prices decrease, demand increases.”

6. 7. 8. 9.

In which two ways can the law of demand be shown? What does a demand schedule chart show? If Ipads cost $600 each, how many would be demanded by consumers? As the price of Ipads decrease, what occurs with the amount demanded?

© 2015 Michael Powell, All Rights Reserved

Page 3 (Reading Comprehension)

Factors that can Cause Demand to Change We have learned that the price of a good will affect the demand for it. However, besides price, there are several other things that can affect how much of a good will be demanded by consumers. A Change in Income A change in people’s income can change demand. The more money people make, the more goods they are able buy. An increase in people’s income will often lead to an increase in demand. However, if people’s income goes down, they will buy less, which will lead to a decrease in demand. Tastes of the Consumers Another important factor that affects the amount demanded for a good is people’s tastes or likes. If a good is popular or considered fashionable then the demand for the good will increase. When the newest Ipad first comes out, they are considered cool and fashionable, thus demand for them are high. If something is no longer popular or liked then the demand for the good will decrease. Population Population can also affect the demand for a good. If there is an increase in number of people, then there will likely be an increase in demand.

Answer each question with a complete sentence on a separate sheet of paper. 1. Besides price, what three other factors can cause a change in demand? 2. When it comes to income, what happens with demand for a good when people’s income rises? 3. If a good becomes popular or fashionable, what will happen to demand? 4. What if people no longer like a good, what will happen with demand? 5. In which way would an increase in population affect demand?

© 2015 Michael Powell, All Rights Reserved

Page 4 (Reading Comprehension)

Complementary Goods Complementary goods are goods that are used together. For example, peanut butter is often used with jelly. Another example would be ink cartridges are used with printers. If the demand for peanut butter decreases for some reason, then the demand for jelly will also decrease. If the demand for peanut butter increase, then the demand for jelly will also increase.

Substitute Goods A substitute good is a good that can take the place of another good. For instance, people who drink a hot beverage like coffee can substitute it for tea if they need to. Or people who drink 7-Up can substitute it with Sprite. If the price of coffee goes up, people will begin to switch to drinking more tea, which increases the demand for tea and leads to a decrease in demand for coffee.

© 2015 Michael Powell, All Rights Reserved

Page 5 (Reading Comprehension)

These Factors can Shift the Demand Curve All of these factors can have an effect on the amount of a good demanded. Any change in the demand from these factors can be shown on a demand curve graph. A change in demand will cause the demand curve to shift either to the right or left. A shift to the left means there would be a decrease in demand, while a shift to the right would mean an increase in demand. The graph above shows the shift in demand. 6. What is a substitute good? 7. If the price for Sprite increases, what will happen with the demand for a substitute good like 7-UP? 8. What are complementary goods? 9. If demand for one complementary good like a printer decreases, what would happened for the demand of ink cartridges? 10.A change in what, will cause the demand curve to shift to the left or right? 11.When the demand curve shifts to the right, what occurs with demand? 12.When the demand curve shifts to the left what happens with demand?

© 2015 Michael Powell, All Rights Reserved

Page 6 (Reading Comprehension)

Name________________________ Per._____ Date:_______________

Directions: Using the demand schedule below, graph a demand curve for Famous Jak’s Donuts in the blank graph and answer the related questions. Demand Schedule for Famous Jak’s Donuts Price for One of Jak’s Donuts Demand for Jak’s Donuts If the price of one donut is $5 5 people would demand it $4 10 $3 15 $2 20 $1 40

© 2015 Michael Powell, All Rights Reserved

1. If the price for a Famous Jak’s donut is $4.00, what will be the amount of donuts demanded by consumers?

2. What if the price for a donut is $1.00, how many will be demanded?

3. As the price for a donut decreases, what happens with the amount demanded?

4. As the price for a donut increases, what happens with the amount demanded?

5. What do you think would happened with demand, if the price of a donut was $10?

© 2015 Michael Powell, All Rights Reserved

Name________________________ Per._____ Date:_______________

Directions: Using the following demand schedule, create a demand curve graph. Make sure to label all parts of the graph and answer related questions.

Demand Schedule for Little John’s Burgers Price for One of Little John’s Burgers $ 12 $10 $8 $6 $4

© 2015 Michael Powell, All Rights Reserved

Demand for Little John’s Burgers 10 15 25 30 40

1. As the price of John’s burgers increases, what happens with the demand for them?

2. What happens with the demand for the burgers, if the price drops? 3. If people’s income increases, what would happen with the demand for John’s Burgers? a. Would this cause the demand curve to shift to the right or left? 4. What would happened if people’s taste changed and people preferred to each healthier, what would happened with the demand for John’s Burgers?

a. Would this cause the demand curve to shift to the right or left? 5. What if there was a large increase in the population around John’s restaurant, what would happen with the demand for his burgers?

a. Would this cause the demand curve to shift to the right or left?

© 2015 Michael Powell, All Rights Reserved

Name________________________ Per._____ Date:_______________

Fill in the demand curve graph below, using the following clues. Price for Each Shoe Demand Curve: Z Shoes Quantity Demanded for Z Shoes Increase in Demand Demand Curve Shifts to the Right Decrease in Demand Demand increase as Price Decrease Demand Curve Shifts to the Left.

Assessment

Supply and Demand The Law of Demand = 8.__________________________

© 2015 Michael Powell, All Rights Reserved

Assessment

Supply and Demand

Name________________________ Per._____ Date:_______________

Select the best answer. 1.What determines the price of a good or service? a. Demand only b. Supply only c. Supply and Demand d. None of the Above

5.If the price of a good or service increases what will happen to the demand for it? a. increase. b. decrease. c. stay the same. d. nobody knows.

2.Consumer are a. people that sell goods and service. b. people that buy goods and services. c. People that consume food. d. None of the Above.

6.In what way can demand be shown a. demand schedule chart. b. demand curve graph. c. by using the formula D + E =DE d. A and B.

3. Demand means a. the amount of a good or service that consumers are willing to buy. b. is the amount of a good or service produced. c. is the price that is demanded by consumers. d. None of the Above.

7.A factor that can change the amount demanded for a good would be a. Income b. Population c. Tastes d. All of the Above

4. What does the law of demand say 8.If a good becomes popular or fashionable, a. consumers will buy less of something what will happen with the demand for the when price go down. good? b. consumers will buy more of something when price increase. a. Decrease c. consumers will buy more of something b. Stay the same when prices go down. c. Increase d. None of the above. d. None of the Above

© 2015 Michael Powell, All Rights Reserved

9.When is comes to substitute goods, if the price of Sprite increases, what will happen with the demand for a substitute good like 7-UP? a. Increase b. Decrease c. Stay the same d. None of the Above

10.If demand for one complementary good like a printer decreases what would happened with the demand for ink cartridges? a. Increase b. Decrease c. Stay the same d. None of the Above

Select the best term for each:

substitute good complementary goods

demand consumer

11. _________________ the amount of a good or service that consumers are willing to buy. 12. _________________is a good that can take the place of another good 13. _________________ are goods that are used together. 14. _________________ people that buy goods and services.

True and False 15. ___________ When a good becomes cheaper, people often see it as deal and will demand more. 16. ___________ When the price for a good increases, then people will demand more of it. 17. ___________ Besides price, there are others factors such as income, taste, and substitute goods that can change demand for a good or service. 18. ___________ The demand curve can only shift in one direction.

© 2015 Michael Powell, All Rights Reserved

Directions: Using the following demand schedule, create a demand curve graph. Make sure to label all parts of the graph and answer related questions.

Demand Schedule for Jane’s Cookies Price for One of Jane’s Cookies $ 2.50 $ 2.00 $ 1.50 $ 1.00 $ .50

19.

© 2015 Michael Powell, All Rights Reserved

Demand for Jane’s Cookies 10 20 40 60 100

Assessment Supply and Demand

Complete all missing areas of both chart below.

© 2015 Michael Powell, All Rights Reserved

Answer Key Assessment

Supply and Demand

© 2015 Michael Powell, All Rights Reserved

1. C 2. B 3. A 4. C 5. B 6. D 7. D 8. C 9. A 10. B 11. demand 12. substitute good 13. complementary goods 14. consumer 15. T 16. F 17. T 18. F

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

© 2015 Michael Powell, All Rights Reserved

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Supply and Demand

Supply and Demand Why does the newest Ipad model cost almost $700 dollars but in six month they will cost only $400? The price of an Ipad is determine...

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