Unit 3 Markets: not just for fleas and stocks!

1. Unit 3 Markets: not just for fleas and stocks!

2. Specialization and Voluntary Exchange

3. Specialization Specialization: people/companies learn and practice a small set of skills then work or trade with others with differentskills to produce something Improves efficiency/productivity The assembly line idea

4. Why does specialization work? Skills are developed at a deeper level people become “experts” in their field Costs are cut because time needed to produce is decreased Training can be more focused and in-depth Remember: People, Stores & industries specialize

5. Examples of specialization Doctors – cardiologists, dermatologists, dentists, podiatrists, rhinologists

6. Examples of specialization Teachers – grade level, subject, coaches Stores at the mall – food court, hats, electronics, shoes, clothes Write two examples of specialization in each of these areas: Restaurant Movie Courts

7. How does specialization relate to voluntary exchange? Because we specialize, we rely on others for the things we don’t produce (CAUSE AND EFFECT!) In an exchange, BOTH sides are looking to gain something BOTH sides gain in VOLUNTARY, NON-FRAUDULENT EXCHANGE

8. How does each side gain in these potential transactions? LAWYER

9. Circular Flow

10. GPS • SSEMI1 The student will describe how households, businesses, and governments are interdependent and interact through flows of goods, services, and money. • Illustrate by means of a circular flow diagram, the Product market; the Resource market; the real flow of goods and services between and among businesses, households, and government; and the flow of money. • Explain the role of money and how it facilitates exchange.

11. Components of the circular flow • Product market • Factor (resource) market • Households • Businesses • Government • Money • Goods/services • Resources

12. Taxes Taxes GOVERNMENT Goods and Services

13. Supply and Demand

14. GPS • SSEMI2 The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine production and distribution in a market economy. • Define the Law of Supply and the Law of Demand. • Describe the role of buyers and sellers in determining market clearing price.

15. Demand vs. Quantity Demanded

16. Demand vs. Quantity Demanded

17. Demand vs. Quantity Demanded

18. Demand vs. Quantity Demanded Price Price (P) P1 P2 D2 D D1 Q1 Q2 Quantity Quantity (Q)

19. Supply vs. Quantity Supplied

20. Supply vs. Quantity Supplied

21. Supply vs. Quantity Supplied

22. Supply vs. Quantity Supplied Price Price (P) S1 S S2 P2 P1 Q1 Q2 Quantity Quantity

23. Demand • amount of a good or service that consumers are willing and able to purchase at various prices • this can be represented by a graph or by a table • DIFFERENT THAN QUANTITY DEMANDED • QUANTITY DEMANDED – amount a consumer is willing and able to purchase at a SPECIFIC price

24. Price (P) D Quantity (Q) Demand Graph • Essential components • Y axis = prices of good • X axis = quantity of good • AXES MATTER! • Demand line = D • Demand line = D • At $2, there is a QUANTITY DEMANDED of 5 $2 5

25. Law of Demand • THERE IS AN INVERSE RELATIONSHIP BETWEEN PRICE and QUANTITY DEMANDED Why? • the more expensive something becomes, the more likely people are to find a substitute • diminishing marginal utility

26. Supply • amount of a good or service that producers are willing and able to sell at various prices • this can be represented by a graph or by a table • DIFFERENT THAN QUANTITY SUPPLIED • QUANTITY SUPPLIED – amount a producer is willing and able to sell at a SPECIFIC price

27. Supply Graph • Essential components • Y axis = prices of good • X axis = quantity of good • Supply line = S Price (P) • Supply line = S • At a price of $2, there is a QUANTITY SUPPLIED of 3 S $2 3 Quantity (Q)

28. Law of Supply • THERE IS A DIRECT RELATIONSHIP BETWEEN PRICE AND QUANTITY SUPPLIED Why? • the higher the price, the more likely the chance for a greater profit to be made

29. DEMAND SHIFTS (IRDL) • Assume that a diamond ring costs $200 • At $200 buyers are buying around 100 a day • If the price were $100, buyers would be buying 150 a day • What happens if people’s income doubles? • Now, at $200, people want 150 rings. • What about at $100? Will people want more or less? Market for Diamond Rings P $200 $100 D2 D Q 100 150

30. Price • IF ALL THAT CHANGES IS PRICE, then ONLY QUANTITY DEMANDED or SUPPLIED CHANGES!!!!!!!! P P1 P2 D Q Q1 Q2

31. RIPEN and GRENT“Determinants of Supply and Demand”

32. Determinants of Demand (Things that shift the entire line!) elated goods (Complements and Substitutes) Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases • R • I • P • E • N ncome – income increases, demand increases; income decreases, demand decreases references – preferences increase, demand increases; preferences decrease, demand decreases xpectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases umber of buyers – # of buyers increase, demand increases; # of buyers decrease, demand decreases

33. Determinants of Supply (Entire Line) overnment decisions TAXES – taxes increase, supply decreases; taxes decrease, supply increases SUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply decreases REGULATIONS – regulations increase, supply decreases; regulations decrease, supply increases • G • R • E • N • T • esource prices or availability - • resource prices have an inverse relationship with supply • resource availability has a direct relationship with supply xpectations – expect to sell more, supply increases; expect to sell less, supply decreases; expect to sell at future higher prices, immediate supply decreases. umber of producers – direct relationship to supply echnology or training – direct relationship to supply

34. GPS SSEMI2 The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine production and distribution in a market economy. Describe the role of buyers and sellers in determining market clearing price. Illustrate on a graph how supply and demand determine equilibrium price and quantity. Explain how prices serve as incentives in a market economy.

35. GPS SSEMI2 The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine production and distribution in a market economy. Define the Law of Supply and the Law of Demand. Describe the role of buyers and sellers in determining market clearing price. Illustrate on a graph how supply and demand determine equilibrium price and quantity. Explain how prices serve as incentives in a market economy.

36. GPS • SSEMI3 The student will explain how markets, prices, and competition influence economic behavior. • Identify and illustrate on a graph factors that cause changes in market supply and demand. • Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages. • Define price elasticity of demand and supply.

37. Market Structures

38. GPS • SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. • Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

39. Market Structures MOST COMPETITIVE LEAST COMPETITIVE Pure Monopolistic Oligopoly Monopoly Competition Competition

40. Competitive Markets

41. 2 Major Types of Competitive Markets Pure Competition Monopolistic Competition

42. PURE COMPETITION No single buyer or seller controls supply, demand, or prices There are 4 conditions for PC Many Buyers and Sellers Identical Products Informed Buyers Easy Market Entry and Exit

43. 1. Many Buyers/Sellers Each company or producer accounts for a small portion of goods Everyone acts INDEPENDENTLY, little or no teamwork among competitors

44. 2. Identical Products Buyers choose goods almost SOLELY based on price, not quality Consumers are highly informed about product

45. 3. Informed Buyers Buyers will decide if prices are acceptable This is possible because all the products are nearly identical Offers easy comparison between competitors

46. 4. Easy Market Entry Extremely easy to enter the market and make a profit Low start-up costs, few regulations Easy to switch between goods if you’re already in the market

47. Real World PC? Pure Competition is a model AGRICULTURE is closest to pure competition Many farmers, food is very similar, buyers are informed Commodities also are close Gold, silver, dairy, etc

48. MONOPOLISTIC COMPETITION Similar to pure competition in some areas Many producers Fairly easy to enter market Primary difference between pure competition is sellers try to DIFFERENTIATE their products through advertising

49. Monopolistic Competition (cont’d) Competition based on things other than price Quality, size, perks, color… Advertising differences is key

50. Differences other than Price