Chapter 20 and 21

1. Chapter 20 and 21 Supply and Demand

2. Chapter 20: Demand • Supply and Demand determines trade: • Buyers purchase goods and services with money • Sellers get money for selling goods and services • The price is relative to the amount buyers are willing to trade and the amount sellers are willing to trade for both groups to be happy. • Price is determined between an equilibrium between those that demand and those that sell. • What is demand? • A Ferrari? A trip to Europe? Do you demand these?

3. Demand • Demand: desire, willingness, and ability to buy a good or service at various prices. • For demand to exist: • Consumer must want to buy a product • Be willing to buy the product • Have the resources available to purchase the product

4. Demand schedule • Table that lists the various prices and quantities of a product or service that someone is willing to buy over a range of possible prices. • Marginal Benefit of the 85th bushel is 80. • Total Revenue = price X quantity in a time period

5. Demand Curve

6. Demand curve • Graph that shows the amount of a product that would be bought at all possible prices in the market. • Price (vertical) and Quantity (Horizontal) • Law of demand: quantity demanded and price move in opposite directions (people will buy less the more an item costs and vice versa). • Market demand: the total demand of all consumers within you market.

7. utility • Utility: the pleasure, usefulness, or satisfaction one gets from a good or service (varies for each person) => the resulting feeling from using a product • Marginal utility: the additional satisfaction for each additional unit consumed. • Diminishing marginal utility: the principle that our additional satisfaction, or marginal utility, tends to weaken as more units of a product are consumed. • - The lower the diminishing marginal utility, the better for the seller or producer

8. Shifts in demand • CREATED BY A NON-PRICE DETERMINANT!!! The price remains the same, but quantity would change. • More demand => shifts to the right • Less demand => shifts to the left • Change in Population (number of consumers): population increase/decrease • Change in Consumer income • Normal good: I increase-D increase and I decrease- D decrease • Inferior good: I increase- D decrease and I decrease- D increase • Change in consumer’s taste: what is hot (tickle me elmo, zhu-zhu pets) • Change in consumer’s expectations: tech innovation • Change in substitutes (a good or service which can be used in place of another good or service): Coca-Cola and Pepsi and RC cola • Change in complements (an item used with another good): if price of hot dogs increases too much than demand for hot dog buns decreases)

9. Shifts in Demand

10. Elasticity • When you change the price (increase), what percentage does demand change (decrease). • The extent to which a change in price causes a change in the quantity demanded. • When there are many substitutes, products are usually more elastic. • Products with less substitutes are inelastic (price change has little effect on demand).

11. Chapter 21: supply • Supply: refers to the maximum quantities of a good or service producers are willing to sell at all possible market prices. • Supply Schedule: Table that lists the various prices and quantities of a product or service that someone is willing to produce over a range of possible prices.

12. Supply Schedule What is the Law of Supply?

13. Law of Supply • As prices for a good increase, so will the quantity the producers are willing to supply. If prices fall, the quantity producers are willing to supply will decrease. • Profit: the money or resources one receives for their goods and services over and above the costs. • - Businesses want to supply enough of a product at a price which will create the greatest profit.

14. Supply Curve

15. Changes in supply (shifts) • Created by a non-price determinant! • Change in the cost of resources- P (decreases), suppliers can supply more at the same price. • Change in productivity- More efficient, suppliers can supply more at the same price. • Change in technology- changes efficiency • Government regulations- increase regulations, suppliers will supply less at the same price. • Taxes and subsidies- S increase, Q increase; T increase, Q decrease.

16. Shifts in supply

17. Finding the Equilibrium Price Surplus: the quantity supplied is greater than the quantity demanded (price is too high). Shortage: the amount demanded is greater than the quantity is supplied (price is too low). Equilibrium Price: the price when there is neither a surplus nor a shortage.

18. Supply and demand

19. Price controls • Price Floor: a restriction imposed by the government that prohibits the price from falling below a certain level. • Price Ceiling: a restriction imposed by the government that prohibits a price from going above a certain level. • Good or bad? Why or why not?

20. Prices • Neutral: favor neither the producer nor the supplier. • Flexible: change to meet societies needs • Freedom of choice: price is the result of economic freedom of both suppliers and consumers.