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SUPPLY AND DEMAND

SUPPLY AND DEMAND. CH 4 SEC 2 CH 5 SEC 1 CH 6 SEC 2. Chapter 4 Section 2. The Law of Demand. I. Explain the causes of a change in quantity demanded. A. Microeconomics Branch of economics that deals with behavior and decision making by small units such as an individual or business.

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SUPPLY AND DEMAND

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  1. SUPPLY AND DEMAND CH 4 SEC 2 CH 5 SEC 1 CH 6 SEC 2

  2. Chapter 4 Section 2 The Law of Demand

  3. I. Explain the causes of a change in quantity demanded. • A. Microeconomics • Branch of economics that deals with behavior and decision making by small units such as an individual or business.

  4. I. Explain the causes of a change in quantity demanded. • B. Demand • Combination of desire, ability, and willingness to buy a product. • C. Law of Demand • The demand for an economic product varies inversely with its price. • When prices goes up, demand goes down • When prices go down, demand goes up

  5. What is a demand schedule?The numerical representation of the inverse relationship between price and quantity.

  6. Can you show me a model? • A demand curve • the graphic representation of the inverse relationship between price and quantity demanded • a demand schedule that has been graphed D

  7. I. Explain the causes of a change in quantity demanded. • D. Change in the quantity demanded • A change in the quantity of the product purchased in response to a change inprice. • Move from one point on the demand curve to a new point on the same demand curve. • Income Effect and Substitution Effect

  8. What is the difference between demand and quantity demanded • A quantity demanded is determined by price • A change in price will cause a change in quantity demanded • Graphically, it is a movement from one point on the curve to another

  9. I. Explain the causes of a change in quantity demanded. • D. Change in the quantity demanded • Income Effect • Change in quantity demanded because of a change in the consumer’s real income due to a change in price. • Substitution Effect • Change in quantity demanded because of a change in the relative price of the product.

  10. II. Describe the factors that could cause a change in demand. • A. Change in demand • Consumers demand different amounts at every price, causing the demand curve to shift to the left or the right • Demand increases – shift right • Demand decreases – shift left • Income, tastes, related products

  11. Well, what is a change in demand? • Demand is the whole curve. • It is determined by the five non-price determinants. • A change in one of those will cause a change in demand. • Graphically, it is a shift of the entire curve Price D3 D2 D1 Quantity 0

  12. II. Describe the factors that could cause a change in demand. • A. Change in demand • Consumer Income • If income increases, you buy more • If income decreases, you buy less • Consumer Taste • If you prefer something, you buy more • If you dislike something, you buy less

  13. II. Describe the factors that could cause a change in demand. • A. Change in demand • Prices of related products • Substitutes • Products that can be used in place of other products – Coke vs. Pepsi • Complements • Products that tend to be used together – Coffee and Cream

  14. III. Understand diminishing marginal utility. • A. Marginal Utility • Extra usefulness or satisfaction from acquiring one more unit of a product. • B. Diminishing Marginal Utility • The more units of a certain economic product a person acquires, the less eager that person is to buy more.

  15. Chapter 5 Section 1 The Law of Supply

  16. I. Understand the meaning and concept of supply. • A. Supply • Schedule of quantities offered for sale at all possible prices in a market. • B. Law of Supply • Economic principle stating that the quantity supplied varies directly with its price • Price goes up, supply goes up • Price goes down, supply goes down

  17. II. Explain difference between supply schedule and curve. • C. Supply Schedule • Quantity demand on the x axis - Price per unit on the y axis. Points to be plotted. • D. Supply Curve • Slopes upward and to the right.

  18. Supply Schedule

  19. Can you show me a model? • A supply curve • The graphic representation of the direct relationship between price and quantity supplied. • It is a supply schedule that has been graphed

  20. III. Explain change in quantity supplied. • A. Change in the quantity supplied • Quantity supplied • Amount that producers bring to the market at any one price. • Change in the quantity supplied • Change in amount offered for sale in response to a change in price. • Move from one point on the supply curve to a new point on the same supply curve.

  21. What is the difference between supply and quantity supplied? • Quantity supplied is determined by price. • A change in price will cause a change in quantity supplied. • Graphically, it is a movement from one point on a supply curve to another. S Price P2 P1 Q1 Q2 0 Quantity

  22. IV. Specify the reasons for a change in supply. • A. Changes in supply • Producers offer different amounts of products for sale at all possible prices in the market. • Supply increases – shift right • Supply decreases – shift left • Number of reasons for shifts

  23. So, what’s the story on changes in supply? S2 • Supply is the whole curve. • It is determined by the five non-price determinants of supply. • A change in one of those will cause a change in supply • Graphically, it is a shift of the curve S1 Price S3 0 Quantity

  24. IV. Specify the reasons for a change in supply. • A. Changes in supply • 1) Costs of Inputs – what its takes to make the product • 2) Productivity - efficiency increases supply • 3) Technology – can be good or bad • 4) Number of sellers – competition

  25. IV. Specify the reasons for a change in supply. • A. Changes in supply • 5) Taxes and Subsidies • Taxes increase the costs to make the product • Subsidies are government payments to an individual or business to encourage or protect a certain type of economic activity.

  26. IV. Specify the reasons for a change in supply. • A. Changes in supply • 6) Expectations – if a supplier thinks prices are going up they will withhold supply. • 7) Government regulations – restricts supply.

  27. Chapter 6 Section 2 How Prices are Determined

  28. I. Understand how prices are determined in competitive markets. • A. The Adjustment Process • 1) Moves toward market equilibrium • Situation in which prices are relatively stable and the quantity supplied is equal to quantity demanded.

  29. Demand and Supply S Equilibrium Pe D Qe

  30. I. Understand how prices are determined in competitive markets. • A. The Adjustment Process • 2) Surplus • Situation in which the quantity supplied is greater than the quantity demanded at a given price. • If there is a surplus, the price is likely to decrease.

  31. Surplus S Qs>Qd Surplus D Amount of the surplus Qd Qs

  32. I. Understand how prices are determined in competitive markets. • A. The Adjustment Process • 3) Shortage • Situation in which the quantity demanded is greater than the quantity supplied at a given price. • If there is a shortage, the price is likely to increase.

  33. Shortage Amount of the shortage S Qd>Qs Shortage D Qd Qs

  34. I. Understand how prices are determined in competitive markets. • A. The Adjustment Process • 4) Equilibrium Price • The price that creates neither a shortage nor a surplus. • Intersection of supply and demand curves. • Price where q supplied is = q demanded

  35. II. Explain the importance of an economic model. • A. Economic Model • A set of assumptions that can be used to help analyze behavior and predict outcomes. • 1) Listed in a table • 2) Illustrated with a graph • 3) Stated algebraically

  36. Changes in Demand S Pe3 Pe1 Pe2 D3 D2 D1 Qe2 Qe1 Qe3

  37. Changes in Supply S2 S Pe2 S3 Pe1 Pe3 D Qe3 Qe2 Qe1

  38. Changes in Demand and Supply S2 S1 Pe D2 D1 Qe2 Qe1

  39. Changes in Demand and Supply S2 S1 Pe2 Pe1 D2 D1 Qe2 Qe1

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