Supply and DemandSupply and Demand

Understand Economics and Economic SystemsUnderstand Economics and Economic Systems

MarketplaceMarketplace In a free market, In a free market,

consumers consumers determine the determine the demand of a demand of a product. product.

Entrepreneurs see Entrepreneurs see the demand and the demand and make more of the make more of the product.product.

More supply causes More supply causes the price to the price to decrease as the decrease as the demand is fulfilled. demand is fulfilled.

Supply DefinedSupply Defined

How much of a good or service How much of a good or service a producer is willing and able to a producer is willing and able to produce at different prices.produce at different prices.

Supply is produced by the Supply is produced by the businesses in hopes of making businesses in hopes of making money. money.

Demand DefinedDemand Defined An individual’s need or desire for a An individual’s need or desire for a

good or service at a given price.good or service at a given price. Individuals are willing to consume Individuals are willing to consume

more of product or service at a more of product or service at a lower price. lower price.

When the demand is high, When the demand is high, competitors see opportunity in the competitors see opportunity in the market.market.

Supply and Demand GraphsSupply and Demand Graphs

People draw supply and demand People draw supply and demand graphs so that they can easily see the graphs so that they can easily see the relationship between the supply and relationship between the supply and the demand.the demand.

A supply and demand graph is a A supply and demand graph is a visual visual representation of supply and demand.representation of supply and demand.

The graph shows changes in a The graph shows changes in a product’s demand or supply.product’s demand or supply.

The graph can help predict the The graph can help predict the performance of the product over time.performance of the product over time.

When Supply and Demand MeetWhen Supply and Demand Meet The point at which the supply and The point at which the supply and

demand curve meet is known as the demand curve meet is known as the equilibrium price and quantityequilibrium price and quantity..

When the price is When the price is aboveabove the the equilibrium price, fewer people are equilibrium price, fewer people are willing to buy—the price is too high. willing to buy—the price is too high.

When the price is When the price is belowbelow equilibrium equilibrium price, many people are willing to buy price, many people are willing to buy a lot of the product—the price is too a lot of the product—the price is too low. Suppliers may not be able to low. Suppliers may not be able to make enough money to cover costs.make enough money to cover costs.

Equilibrium Price (Market Price)Equilibrium Price (Market Price)

Equilibrium/ Market Price

Supply Curve

DemandCurve

Prices tell businesses what to Prices tell businesses what to produceproduce

The prices of goods and services The prices of goods and services dictate what products are developed, dictate what products are developed, made, improved or modified.made, improved or modified.

When the price is high, demand falls When the price is high, demand falls and businesses produce fewer goods.and businesses produce fewer goods.

When the price is low, demand rises When the price is low, demand rises and businesses produce more goods and businesses produce more goods to meet the demand.to meet the demand.

Competition is sparkedCompetition is sparked Sellers compete to make a profitSellers compete to make a profit If a person sees that they can If a person sees that they can

meet a need or a want, they enter meet a need or a want, they enter the marketplacethe marketplace They compete with other businesses They compete with other businesses

already meeting the need or want.already meeting the need or want. OROR

They make a new product and They make a new product and competition follows when others enter competition follows when others enter the marketplace.the marketplace.

The Profit MotiveThe Profit Motive People and businesses enter the People and businesses enter the

marketplace in hopes of making a marketplace in hopes of making a profit (money).profit (money).

This “profit motive” encourages This “profit motive” encourages people to enter the marketplace.people to enter the marketplace.

This hope of making a profit is the This hope of making a profit is the reward for people who take risks reward for people who take risks by entering the marketplace.by entering the marketplace.