Market Forces Guided Notes
Unit 2: Economics • Page 1
Economic Foundations: Supply
Part 1: Supply
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Date:
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The Law of Supply (Slide 2)
The Law of Supply states that, keeping other factors constant, an increase in the price of a good or service results in an in the quantity supplied.
Conversely, when the market price decreases, producers the quantity they bring to market to minimize potential losses.
Price Goes UP ↑: Higher market prices signal higher potential profit.
Supply Expands: Producers allocate more resources to increase output.
Reading the Supply Curve (Slide 3)
Y-Axis (Price): Vertical axis. Represents how much pay.
X-Axis (Quantity): Horizontal axis. Represents how many items are .
Upward Slope: Higher prices mean more profit, so sellers produce !
Sketch Supply Curve
P Q
Draw line labeled "S"
Non-Price Determinants of Supply (Slide 4)
1. Input Prices & Tech • Cost of labor & materials directly impacts profit.
• New technology boosts efficiency & supply.
2. Government Policy • Taxes and regulations raise costs, supply.
• Subsidies (financial aid) lower costs, supply.
3. Market Dynamics • More sellers in the market directly supply.
• If future prices are expected to rise, sellers .
Shifts in the Supply Curve (Slide 5-6)
Shift Right (S₁ → S₂): Supply . Sellers produce at every price level (e.g., lower production costs).
Shift Left (S₁ → S₃): Supply . Sellers produce at every price level (e.g., severe droughts).
S₁
Draw shifts to S₂ and S₃
Page 1 of 5
Unit 2: Economics • Page 2
Economic Foundations: Demand
Part 2: Demand
The Law of Demand (Slide 8)
The Law of Demand states that when the price of a good or service changes, consumer behavior shifts in the direction.
Price Goes UP ↑: Demand goes . Consumers buy less because it costs more.
Price Goes DOWN ↓: Demand goes . Consumers buy more.
Pizza Example: At $5.00 a slice, you might buy one slice. At $1.50, you are likely to buy multiple.
Reading the Demand Curve (Slide 9)
Downward Sloping: As price falls, buying increases. As price rises, buying .
Ceteris Paribus: This Latin assumption means all other non-price factors remain completely .
Sketch Demand Curve
P Q
Draw line labeled "D"
Non-Price Determinants of Demand (Slide 10)
1. Income & Wealth • Normal Goods: Demand rises when income .
• Inferior Goods: Demand falls as income .
2. Prices of Other Goods • Substitutes: Price of brand A rises, demand for B .
• Complements: Price of A rises, demand for B .
3. Tastes & Expectations • Successful marketing or viral trend shifts demand .
• Anticipating future price hikes triggers a today.
Shifts in the Demand Curve (Slide 11-12)
Shift to Right (D₁ → D₂): Demand . Consumers buy more at every price level (e.g., payday/allowance double).
Shift to Left (D₁ → D₃): Demand . Consumers buy less at every price level (e.g., cheaper competitor taco shop sale).
D₁
Draw shifts to D₂ and D₃
Page 2 of 5
Unit 2: Economics • Page 3
Economic Foundations: Market Equilibrium
Part 3: Equilibrium
What is Equilibrium? (Slide 15)
Word Dissection
• "Equi-" sounds like equal, equivalent.
• "-librium" refers to scales, , or weight.
The Sweet Spot Equilibrium Price is where buyers and sellers agree on a price, leaving no or .
Finding the Equilibrium Point (Slides 16-17, 19)
Market Schedule Table
| Price | Want (D) | Supply (S) |
|---|
| $10 | 100 | 20 |
| $15 | 80 | 40 |
| $20 | 60 | 60 |
| $25 | 40 | 80 |
| $30 | 20 | 100 |
Equilibrium Price is $ where Qty matches at units.
Diagram: Label the 5 Graph Parts
S:
E:
D:
Visualizing Market Disequilibrium (Slide 20)
Market Surplus (P > P*) Occurs when price is set equilibrium.
Sellers supply than buyers want (QS > QD), causing unsold inventory.
Market Shortage (P < P*) Occurs when price is set equilibrium.
Buyers demand than sellers produce (QD > QS), causing empty shelves.
Page 3 of 5
Unit 2: Economics • Page 4
Economic Foundations: Types of Goods
Part 4: Goods
Income Relationships: Normal vs. Inferior Goods (Slides 26-27)
Normal Goods
Demand when buyer income rises.
Examples: Organic foods, premium electronics, brand new cars.
Inferior Goods
Demand when buyer income rises.
Examples: Cheap instant ramen, bus tickets, generic brand cereals.
Price Relationships: Substitutes vs. Complements (Slides 26-27)
Substitute Goods
Products used in of one another.
Price rise in Coke drives demand UP for Pepsi.
Complementary Goods
Products consumed .
Price rise in printer drives demand DOWN for ink.
Practice: Labeling Types of Goods (Slide 30)
Classify each real-world product based on how consumer behaviors shift.
Round 1: Income Shifts
1. Designer Handbags & Watches
When household earnings rise, sales of accessories scale UP dramatically.
Label:
2. Powdered & Canned Milk
As salaries improve, shoppers buy fresh milk, dry milk demand drops DOWN.
Label:
Round 2: Price Connections
1. Electric Cars & Home Chargers
A steep decline in electric car prices leads to a demand surge UP for chargers.
Label:
2. Butter & Margarine
If retail price of butter spikes, sales for margarine quickly trend UP.
Label:
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Unit 2: Economics • Page 5
Economic Foundations: Price Elasticity
Part 5: Elasticity
Elasticity of Demand: How Stretchable is the Price? (Slides 31-32)
Elastic Demand (Stretchy)
Super to price. If price goes up, buyers run away fast because of easy alternatives.
Example: Pizza slices increase from $2 to $5, you buy tacos instead.
Inelastic Demand (Stiff)
Not to price. Buyers pay because they absolutely need it (no backups).
Example: Insulin or vehicle fuel prices double, you must still purchase them.
The "Rubber Band" vs. "Brick" Rule: Elastic is a (highly stretchable!). Inelastic is a (rock solid, does not budge).
Elasticity of Supply: How Easy is it to Make More? (Slide 33)
Elastic Supply (Flexible) Sellers can ramp up production when prices jump.
Example: Printed books & t-shirts (run printing presses longer).
What Makes Supply Stretchy? 1. Excess (running below limit)
2. Low Complexity & Easy (warehouse storage)
The "Spigot" vs. "Gold Mine" Rule
• Can you turn it on like a Spigot? If price spikes, open the valve and instantly flood the market. (Software, plastic cups) = Elastic.
• Or must you dig a new Gold Mine? If launching production requires years of building, mining, or specialized labor = Inelastic.
Comparative Summary (Slide 35):
Buyers (Demand Side): Focuses on price sensitivity, highly dependent on alternatives and .
Producers (Supply Side): Focuses on production flexibility, driven by capacity, resources, and .
Page 5 of 5
Market Forces Active Practice
Unit 2: Economics Assessment
Market Forces Active Practice
Checkpoint Worksheet
Name:
Date:
Class Period:
CHECKPOINT 1
Supply Learning Check (Slide 7)
Q1. Along vs. Shift
If market price changes, does it cause a shift of the curve or movement along it?
Q2. Shift Directions
If automated robots make production cheaper, which way does the supply curve shift?
Q3. External Shocks
How do strict new cage-free regulations affect the market supply for eggs?
CHECKPOINT 2
Demand Scenario Analysis (Slide 14)
Scenario Set A: Curve Movements & Shifts
1. Local burger shop drops price from $8 to $5:
Does this cause a shift of the curve or a movement along it?
2. New viral study claims burgers boost brain power:
Does this shift the curve left or right?
3. The price of pizza (a substitute) increases:
How does this affect the burger shop's demand curve?
Scenario Set B: Concept Verification
1. The "Ceteris Paribus" Rule:
Why must we assume other factors remain unchanged when graphing a standard curve?
2. Normal vs. Inferior:
If household income drops by 15%, what happens to luxury dining vs. instant noodle demand?
3. Complements:
If the price of burger buns rises sharply, what is the expected market shift for beef patties?
Page 1 of 2
Unit 2: Economics Assessment
Market Forces Active Practice
Checkpoint Worksheet
CHECKPOINT 3
Equilibrium Analysis (Slide 22)
Scenario: What happens at $25?
Look back at our market schedule data:
- At $25, Buyers want: 40 items
- At $25, Sellers offer: 80 items
Because sellers produce more than buyers want, what market condition does this create?
Option A: Market Surplus
Option B: Market Shortage
Option C: Perfect Equilibrium
Explain your reasoning: Why does this occur, and how will price eventually adjust?
CHECKPOINT 4
Classifying Types of Goods (Slide 29)
Scenario A: The Paycheck Effect
1. Premium Coffee Subscriptions:
As consumer incomes rise, subscription sign-ups spike UP dramatically.
Classification:
