Week 4 AP Economics
Supply and Demand
Unit 1 test
Vocabulary for Supply and Demand
Monday This week read pages 47-88 in your
PDF downloaded textbook.
• Objective: Be able to use the newspapers to demonstrate resources,
economic questions, productivity, factors of production, scarcity,
economic growth.
• Be able to work in small groups and determine what product you will
make with the newspapers, be able to state what resource they are
representing.
• Do Now: Read over your notes on comparative advantage
• EQ: What is scarcity? What is productivity? What is output? How
can you demonstrate these concepts with the newspapers
Students will work in small groups
• There are newspapers- use them to represent different resources (can
you list the 4 factors of production?) how can you show different
resources with the newspapers- your group decide
• Then decide on a product that you can make with the papers you
have? Do you have enough of the resources? How many can you
make in the time allotted to you? Was everyone productive? Did you
have to trade? How did that help your productivity?
• Create a product in the allotted time. See how many you can make
• Share out at end of the class.
Monday This week read pages 47-88 in your
PDF downloaded textbook. In closing
• Objective: Be able to use the newspapers to demonstrate resources,
economic questions, productivity, factors of production, scarcity,
economic growth.
• Be able to work in small groups and determine what product you will
make with the newspapers, be able to state what resource they are
representing.
• Do Now: Read over your notes on comparative advantage
• EQ: What is scarcity? What is productivity? What is output? How
can you demonstrate these concepts with the newspapers
Tuesday- remember to read section 2 pg. 4788
• Be able to create a demand graph, explain why it must go down, be
able to explain what the difference between change in demand and
change in quantity demanded.
• Be able to draw a graph, be able to explain in proper terms what
demand is, what change in quantity demanded is
• EQ: What is change in demand? Change in qty demanded?
• Do Now: Read back over your comparative advantage notes and
make sure you have a summary over them
• Materials- item to bid for
• Introduce demand with a bid on a product• Does the bid go up if they have more money to bid?
• What happens when there is a very limited amount for something
they really want?
• Begin taking notes over demand and a competitive market
How can a flood in Pakistan impact the cost of
your clothing in the US?
• There are times when a perfect storm hits and has extreme consequences.
One such storm was the price of cotton used to manufacture clothing.
• Recession in 2008-09 caused many not to buy new clothes so by 2012 they were in
need of new clothing.
• 2011 the cotton prices were triple from year before, clothing manufacturers were
purchasing cloth for clothing to sell in 2012.
• Severe weather an in particular a flood in Pakistan (4th largest cotton producer in the
world) killed the cotton crops.
• Clothing manufactures reduced cost where they could and used more synthetic
fabric in an effort to keep clothing cost down.
• Countries like the USA, who did not lose crops to storms, benefited from the high
cost of cotton so they planted more acreage.
SUPPLY AND DEMAND IS WHY
A MARKET IS THE SELLERS AND BUYERS
• A competitive market is one with many buyers and sellers. If there is
only one supplier then they have a monopoly and control the price.
• In a competitive market supply and demand influence the price.
• THEY COME TOGETHER TO TRADE THEIR PRODUCTS
• What do they have in common? Can they both get exactly what they
want? What happens?
A supply and demand model (curve) is a
model of how competitive market works
• 5 elements:
• 1. The demand curve
• The supply curve
• The set of factors that cause the demand curve to shift and the set of factors
that cause the supply curve to shift.
• The market equilibrium, which includes the equilibrium price and the
equilibrium quantity
• The way the market equilibrium changes when the supply curve or demand
curve shifts.
TODAY WE WILL LOOK AT THE DEMAND CURVE
Work sheets 16 and 17
• Note that in several common economics graphs including the supply
and demand the dependent variable is on the vertical axis and the
independent variable is on the horizontal axis. This is the opposite of
what you learned in math and may cause some confusion to begin
with.
•  in Demand is a shift of the Demand Curve
•  in Quantity Demanded changes only with the price of good/service
and this causes only a movement up or down the curve not a shift.
Shifts of the demand curve
• Anything other than a change in price that changes the amount
demanded will shift the curve.
• An increase is a rightward shift.
• A decrease in demand is a leftward shift. (left is less)
• 5 principal factors to cause shifts
•
•
•
•
•
Changes in the prices of related goods or services
Changes in income
Changes in tastes
Changes in expectations
Changes in the number of consumers
Wednesday continue Demand
Objective: be able to explain the 5 shifters of demand and then
demonstrate how to apply them to practice problems.
Do Now: Go back over the 5 SHIFTERS AND QD AND D know which
of these two is a movement on the demand curve and which one is a
shift of the demand curve.
EQ: What is TRIBE? The answers to the Do Now.
substitutes
• If the price of one thing goes up I would substitute something else
that didn’t. That means the demand for the initial item would go
down but the demand for the other item would increase.
•
•
•
•
•
Chicken for beef
Cake for ice cream
Ball game for movie
Tea for soft drink
Donut for a muffin
complements
• These are things that are generally purchased together, so if the price
of one goes up the demand for not only that item but the
complementary item will also drop.
• Ski’s and ski boots
• Cookies and milk
• Hot dogs and buns
Change in income (What are 5 things you would
no longer buy if you were a millionaire?)
• If a family’s income increases it is more like to increase the demand
for most goods.
•
•
•
•
More massages
Vacations
Eating out (fast foods tend to drop and sit down restaurants increase)
Auto versus using a bike
* A good is considered normal if the increase in income causes it to increase in
demand, but it is considered inferior if an increase in income causes the
demand to decrease for that good. ( a bus ride versus your own car, store
brand goods for name brands, box seats versus the gallery. . .)
Changes in Taste
• Things come and go in what is popular
• Not too many wear a top hat today, but once it was expected
• Domestic wines were not always considered in the same market as Italian
wines
• Advertising convinces us we want something
• How many people do you thing would buy a bag phone for their cell phone
now?
Changes in Expectations
• If we expect sales to come, and we can wait, demand would drop
until the time of sale. (after Christmas sale for ornaments and cards)
• In same way if we expect the prices to go up then we will demand
more now.
• A change in expectation of income, an inheritance or job promotion,
might make you demand more now. On the other hand if you were
expecting you might lose your job then demand would go down.
Change in number of consumers
• The baby boom caused the demand for cribs and other baby related
items to increase
• The movement of people in or out increases or decreases the
demand
TRIBE
• Taste and preferences
• prices of Related goods
• Income
• the number of Buyers and
• Expectations
• Make note of the parts of a Demand Curve
•
•
•
•
•
What goes on vertical axis
What goes on horizontal axis
What shifts the demand?
Which way does it shift?
Which direction does the demand curve ALWAYS GO? Why? The LAW OF
DEMAND, says that a higher price for a good or service, other things being
equal , leads people to demand a smaller quantity of that good or service.
•
Price
Price
Price
D2
QD
D
D
Qty
D
D2
Qty
D
D
Qty
Go over the handouts
Thursday- go over TRIBE
• Objective: Be able to draw a supply graph
• Be able to explain the law of supply
• The shifters of supply and the difference between a change of
quantity supplied and change in supply
• Be able to listen to lecture and take notes, using power point to guide
you, be able to link these notes to your reading notes
• EQ: What is law of supply? Shifters of supply? Change in supply and
change in qty supplied
• Do now: summarize your notes on Demand- do you have reading
notes over demand? Connect those
Friday Review and add to the Demand notes
• Be able to explain and draw equilibrium on a simple supply and
demand curve. Be able to show on the graph what happens when
there is a ceiling and a floor.
• Be able to draw graphs with different situations
• EQ: What is a ceiling? What is a Floor? What do these create? What
are examples
• Do now: Go back over your notes on supply- link them with your
reading notes
DEMAND DEFINED
What is Demand?
Demand is the different quantities of goods
that consumers are willing and able to buy at
different prices.
(Ex: Bill Gates is able to purchase a Ferrari, but if
he isn’t willing he has NO demand for one)
What is the Law of Demand?
The law of demand states There is an
INVERSE relationship between price and
quantity demanded
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LAW OF DEMAND
As Price Falls…
…Quantity Demanded Rises
As Price Rises…
…Quantity Demanded Falls
Price
Quantity
Demanded
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Why does the Law of Demand occur?
The law of demand is the result of three
separate behavior patterns that overlap:
1.The Substitution effect
2.The Income effect
3.The Law of Diminishing Marginal Utility
We will define and explain each…
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Why does the Law of Demand
occur?
1. The Substitution Effect
• If the price goes up for a product, consumer
but less of that product and more of another
substitute product (and vice versa)
2. The Income Effect
• If the price goes down for a product, the
purchasing power increases for consumers allowing them to purchase more.
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Why does the Law of Demand occur?
3. Law of Diminishing Marginal Utility
•
•
•
U-TILITY
Utility = Satisfaction
We buy goods because we get utility from them
The law of diminishing marginal utility states that as you consume more units
of any good, the additional satisfaction from each additional unit will
eventually start to decrease
• In other words, the more you buy of ANY GOOD the less satisfaction you get
from each new unit.
Discussion Questions:
1. What does this have to do with the Law of Demand?
2. How does this effect the pricing of businesses?
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• Handout
• Notes
• Practice questions
• Supply and demand test questions for them to work out with
shoulder partner