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Chapter 7

Chapter 7. Supply and Demand. Section 1. Demand. The Marketplace. Demand The amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period. The Marketplace. Supply

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Chapter 7

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  1. Chapter 7 Supply and Demand

  2. Section 1 Demand

  3. The Marketplace • Demand • The amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period

  4. The Marketplace • Supply • The amount of a good or service that producers are able and willing to sell at various prices during a specified time period

  5. The Marketplace • Market • The process of freely exchanging goods and services between buyers and sellers

  6. The Marketplace • Examples of Markets • Stores • A place where you buy food, clothing, or other items • Services • Any activity that one person performs for another for a fee

  7. The Marketplace • Examples of Markets • Entertainment • Whenever we pay for entertainment we are participating in a market

  8. The Marketplace • Examples of Markets • Internet Shopping

  9. The Marketplace • Voluntary exchange • Transaction in which a buyer and seller exercise their economic freedom by working out their own terms of exchange • Marketplace • Operates through voluntary exchange

  10. The Law of Demand • Law of demand • Economic rule stating that the quality demanded and price move in opposite directions

  11. The Law of Demand Quantity demanded goes down. As price goes up ...…….

  12. The Law of Demand As price goes down……. Quantity demanded goes up ………….

  13. The Law of Demand • Quantity demanded • The amount of a good or service that a consumer is willing and able to purchase at a specific price

  14. The Law of Demand • Real income effect* • Economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same

  15. The Law of Demand • Purchasing power • The amount of goods and services people can actually buy with their money

  16. The Law of Demand • Substitution Effect • Economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the other*

  17. The Law of Demand • Diminishing Marginal Utility • Utility • The ability of any good or service to satisfy consumer wants*

  18. The Law of Demand • Diminishing Marginal Utility • Marginal Utility • An additional amount of satisfaction*

  19. The Law of Demand • Diminishing Marginal Utility • Rule stating that the additional satisfaction a consumer gets from purchasing one or more unit of a product will lessen with each additional unit purchased*

  20. Section 2 The Demand Curve and Elasticity of Demand

  21. Graphing the Demand Curve • Demand Schedule • Table showing quantities demanded at different possible prices*

  22. Graphing the Demand Curve • Demand Curve • Downward sloping line that shows in graph form the quantities demanded at each possible price

  23. Quantity Demanded vs. Demand • A change in quantity demanded • Caused by a change in the price of a good • A change in demand • Shown as a shift in the entire demand cure • To the left (decrease in demand) • To the right (increase in demand)

  24. Factors that affect demand for a product

  25. Determinants of Demand • Factors that affect demand for a product • Change in population • Changes in income • Changes in people’s tastes and preferences • The existence of substitutes

  26. Determinants of Demand • Factors that affect demand for a product • The existence of complementary goods

  27. Determinants of Demand • Changes in Population • Population increase = opportunities to buy and sell increase • Demand for most products increases

  28. Determinants of Demand • Changes in Tastes and Preferences • When an item becomes a fad • More items are sold at every possible price • Demand curve shifts to the right

  29. Determinants of Demand • Complementary Goods • A product often used with another product • Two complementary goods • The decrease in the price of one will increase the demand for it as well as its complementary good.

  30. The Price of Elasticity of Demand • Elasticity • Economic concept of dealing with consumers’ responsiveness to an increase or decrease in price of a product

  31. The Price of Elasticity of Demand • Price elasticity of demand • Economic concept that deals with how much demand varies according to changes in price

  32. The Price of Elasticity of Demand • Elastic demand • Situation in which the rise or fall in a product’s price greatly affects the amount that people are willing to buy

  33. The Price of Elasticity of Demand • Inelastic Demand • Situation in which a product’s price change has little impact on the quantity demanded by consumers • Example: Salt, pepper, and sugar are certain types of medicines that normally have inelastic demand

  34. Section 3 The Law of Supply and the Supply Curve

  35. The Law of Supply • Law of supply • Economic rule stating that price and quantity supplied move in the same direction

  36. The Law of Supply • Law of supply • As price rises for a good, the quantity supplied generally rises* • Quantity supplied • The amount of a good or service that a producer is willing and able to supply at a specific price

  37. The Supply Curve • Supply schedule • Table showing quantities supplied at different possible prices • Supply Curve • Upward-slopping line that shows in graph form the quantities supplied at each possible price

  38. Name and explain the determinants of supply.

  39. The Determinants of Supply • Price of Inputs • Inputs-Raw materials; wages • If the price of inputs drop, a producer can supply more at a lower production cost. • If the cost of inputs increases, suppliers will offer fewer goods for sale at every possible price

  40. The Determinants of Supply • Number of firms in the industry • As more firms enter the industry, greater quantities are supplied at every price • The supply curve shifts right

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