Introduction to BusinessIntro to Supply and Demand

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Economic Resources (factors of production)

Definition: Resources needed to provide goods/services to consumers

Natural Resources: raw materials that come from the earth, water and air. (e.g. soil, iron ore, gold, oil, trees, wildlife, agricultural products, fish, oxygen)

Human Resourcesthe people who work to create the goods and services (e.g. farmers, factory workers, construction workers, website designers, teachers, nurses, pilots)

Capital Resources: resources that last for a long period of time and

require investment on the part of the business (e.g. buildings, equipment, tools, trucks and factories)

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Scarcity: The basic economic problemPeople have unlimited wants.At the same time, the world has limited resources.

Society has to decide HOW to use these limited (scarce) resources. Available resources include: Natural resourcesHuman resourcesCapital resources

Economic Resources

In most cases, it takes a combination of all 3 economic resources to create the goods and services that businesses provide

What happens if there is not enough of an economic resource? (i.e. Oil)

The price of the good/service increase Alternatives must be found for the resource

Demand and Supply I am selling my I-PodI am selling my I-Pod

Who would like to buy it? What will you pay for it?

Demand: the quantity of goods or service that

consumers are willing and able to buy at a particular price.

Demand and Supply Law of Demand

Usually consumers will increase the demand of a good or service as price decreases (which goods might this not apply to?)

Demand↑ Demand↑ as Price↓Price↓

What Creates Demand?

1. Consumer is aware of or interested in the good or service (business do this by advertising)

2. Ample supply of the good/service3. Price is reasonable and competitive4. The good/service must be accessible.

What Affects Demand?

1. Price

2. The price of substitute or complementary goods

3. Change in consumers’ income (increase in income usually means more goods/services are purchased, however it could mean less)

4. Change in consumers’ tastes (why don’t people buy neon pink headbands anymore?)

5. Changes in what we expect in the future (e.g. if we think the price will decrease, we’ll wait to buy)

Discussion Questions 2012 – Electronic Trends1. Think of the things that you and your friends buy or would like to buy.

What products are in high demand among your age group? Why are they in demand? Think of examples from the

Fast food industry… Entertainment industry… Travel industry… Automotive industry… Recreation/sports industry…

2. Explain how a change in prices of related (complementary) goods affects demand?

Supply

Definition: the quantity of a good or service that businesses are willing and able to provide within a range of prices that people would be willing to pay

Law of Supply: ↑S as ↑P

Usually as prices increase, producers will increase the quantity of goods they provide

Quantity Supplied

P

R

I

C

E

Conditions that Affect Supply A change in the number of producers (more producers

increases the supply of goods and usually decreases the price)

Eg. Sony sold the first CD Player in 1982 for a retail price of over $900. How much are they now?

Conditions that Affect Supply Price of related goods (if gas prices increase, people may buy more

energy efficient cars) Change in Price (If price decreases, production may too) Change in technology (VCR sales vs. DVD sales) Change in expectations Change in cost of production (if you provide a lawn cutting service and

the price of mowers increases – continue only if you can charge more!) Environmental factors

‘The Free Market’We live in a society where producers (and entrepreneurs) are allowed to supply goods and services that people demand. Prices are determined by the forces of supply and demandSupply – represents what producers are willing to supplyDemand – represents the needs and wants of consumers

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Law of Demand

Demand is the quantity of a good or service that consumers are willing and able to buy at a particular price.

Law of demand: When prices decrease

consumers buy more and demand goes up

When prices increase consumers buy less and demand goes down

Group Activity In your group, create a list with pictures showing

‘Factors that Affect Demand’ E.g.

1. Weather/seasons

2. Holidays

3. Price of the good

4. Price of substitutes.

Cars and fuel Shaving Cream and Razors Pencils and erasers

5. Price of complementary goods.

6. Consumer’s income

7. Consumer’s taste of goods (Fads & Trends)

8. Expectation about future prices

9. Advertising

10. Economy

1. Weather/Seasons

2. Holidays

3. Price of the good

4. Price of substitutes

5. Price of complementary goods

6. Consumer's income

7. Consumer's taste for the good (fads & trends)

8. Consumer's expectations about future prices

9. Advertising

10. Economy (e.g. recession = less demand)

12 factors that affect demandfor goods and services:

DEMAND

0

500

1000

1500

2000

2500

3000

3500

1 2 3 4 5

QUANTITY

PR

ICE

D

SUPPLY

0

500

1000

1500

2000

2500

3000

1 2 3 4 5

QUANTITY

PR

ICE

S

EQUILIBRIUM POINT- OCCURS WHEN SUPPLY MEETS DEMAND

EQUILIBRIUM

0

500

1000

1500

2000

2500

3000

3500

1 2 3 4 5

QUANTITY

PR

ICE

Application – Select a product from the list below:

What is its current price? List the names of two similar products and note

their current prices What was the price of your selected product last

year at this time? Explain why the price has or has not changed over

that period of time.

Fast food hamburger, price or gas, price of bacon, litre of milk