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Aim: How do the laws of supply and demand operate in a market economy?

Explore the laws of supply and demand and how they operate in a market economy. Learn about the concepts of demand, quantity demanded, supply, and quantity supplied. Understand how price acts as a balancing mechanism and affects shortages and surpluses. Discover the factors that cause changes in demand and supply. Study the concept of elasticity and its impact on demand and supply. Dive into different models of competition in the market system, including perfect competition, monopolistic competition, oligopoly, and monopoly.

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Aim: How do the laws of supply and demand operate in a market economy?

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  1. Aim: How do the laws of supply and demand operate in a market economy? LAW OF DEMAND • All things being equal, consumers are willing and able to buy more of a product when the price is relatively low and less of a product when the price is relatively high QUANTITY DEMANDED • The amount of a good or service that consumers are willing and able to buy at a given price

  2. LAW OF DEMAND

  3. LAW OF DEMAND

  4. Aim: How do the laws of supply and demand operate in a market economy? LAW OF SUPPLY • All things being equal, producers will offer more of an item (product) for sale when the price is relatively high and less when the price is relatively low. QUANTITY SUPPLIED (QS) • The amount of a good or service producers are willing to sell at a given price

  5. LAW OF SUPPLY

  6. LAW OF SUPPLY

  7. SUPPLY AND DEMAND

  8. SUPPLY AND DEMAND • If the price of a product increases, what will happen to QD?…what will happen to QS? • How does price act as a balancing mechanism to correct for shortages?…surpluses? • At what price does QD equal QS? • True or False: A demand curve has a negative slope.

  9. Aim: How do the laws of supply and demand operate in a market economy? DO NOW: • According to the law of demand, as the price of a particular item increases, what will happen to QD? Explain. • …as price decreases, what will happen to QD? • According to the law of supply, as the price of a product increases, what will happen to QS? Explain. • How does price act as a balancing mechanism to correct for shortages?…surpluses? At what price does QD equal QS?

  10. Change in Demand v. Change in QD CHANGE IN DEMAND • Change in consumer preference • Change in consumer income • Change in consumer expectation • Change in price of substitute or complementary items CHANGE IN QD • Results from change in price of the item

  11. Aim: How do the laws of supply and demand operate in a market economy? DO NOW: • Supply and Demand quiz tomorrow • Test – either Friday or Monday • What is the difference between a “Change in Demand” and a “Change in QD”?

  12. Change in Supply v. Change in QS CHANGE IN SUPPLY • Change in costs of production (increase or decrease) • Prices of human, natural or capital resources change • Ability to reallocate resources CHANGE IN QS • Change in price of item

  13. Change in Supply v. Change in QS

  14. Change in QS v. Change in Supply

  15. SUPPLY AND DEMAND • As price increases, what happens to QS? As price decreases, what happens to QD? • A “change in QD” is always the result of a change in price. True or False • What factors cause a “change in demand”? How is it graphed?

  16. SUPPLY AND DEMAND • What condition is achieved when QD is equal to QS? What do you call that price? • What condition is achieved when QS exceeds QD? • What condition is achieved when QD exceeds QS? • How can these situations be alleviated?

  17. ELASTICITY OF DEMAND Elasticity: the degree of responsiveness of QD to changes in price • Elastic = greater change in QD • Inelastic=little change in QD

  18. ELASTICITY OF DEMAND Products that are Elastic • Luxuries • Items with substitutes • High price items • Items whose purchase can be delayed Products that are Inelastic • Necessities • Items with no substitutes • Low price items • Items whose purchase cannot be delayed

  19. Which of the following items are elastic?…inelastic? • Toothpaste • Soap • Car • Jewelry • Cough medicine • Couch • Insulin • Clothing • Deodorant • Cosmetics • vegetables

  20. ELASTICITY OF SUPPLY Elasticity: • the degree of responsiveness of QS to changes in price • Elastic = great change in QS • Inelastic=little change in QS • What types of goods will be elastic in supply?…inelastic in supply?

  21. Aim: How do the laws of supply and demand operate in a market economy? DO NOW: • What types of goods are elastic in demand?…inelastic in demand? • What type of goods are elastic in supply?…inelastic in supply?

  22. Aim: How do the laws of supply and demand operate in a market economy? MARGINAL UTILITY • The extra usefulness or satisfaction a person gets from acquiring one more unit of a product • Example? DIMINISHING MARGINAL UTILITY • Decreasing satisfaction or usefulness as additional units of a product are acquired • Example?

  23. Aim: How does competition vary in the Market system? DO NOW: Copy into notes MODELS OF COMPETITION • Perfect competition • Monopolistic competition • Oligopoly • Monopoly

  24. Aim: How does competition vary in the Market system? PERFECT COMPETITION • Many buyers and sellers • No barriers to entry • Product similar/substitutable • Consumers informed • price takers

  25. Aim: How does competition vary in the Market system? MONOPOLISTIC COMPETITION • Many buyers and sellers • Similar products yet consumers perceive difference • Limited influence over price

  26. Aim: How does competition vary in the Market system? OLIGOPOLY • Few producers in industry • Some influence over price • Some product differentiation

  27. Aim: How does competition vary in the Market system? PURE MONOPOLY • One seller • Barriers to entry • No substitutes • Price maker

  28. Aim: How does competition vary in the Market system?

  29. Aim: How does competition vary in the Market system? DO NOW: • Identify 4 ways to classify industries based upon their degree of competition. • ? • ? • ? • ?

  30. Aim: How does competition vary in the Market system? DO NOW: • What factors make an industry perfectly competitive? • How is perfect competition different from monopolistic competition? • What is an oligopoly? • Why are pure monopolies illegal in the U.S.? • What is meant by non-price competition? What types of industries use non-price competition?

  31. Perfect Competition (PC), Monopolistic Competition (MC), Oligopoly (O), Pure Monopoly (PM) Label each of the following industries using the appropriate model of competition. • Steel • Clothing • Agriculture • Automobiles • Nail salons • Gasoline stations

  32. Perfect Competition (PC), Monopolistic Competition (MC), Oligopoly (O), Pure Monopoly (PM) Label each of the following industries using the appropriate model of competition. • Water service • LIPA • Haircare products • Fastfood restaurants • Hair salons • Hardware stores

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