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Supply and Demand

Explore the fundamental principles of market economics with Adam Smith in this engaging wheat trading game. Learn how free markets promote social welfare, allocate scarce resources, and determine production based on supply and demand dynamics. Discover the role of price in determining what is produced and for whom, and delve into concepts like the law of demand and supply, drawing demand and supply curves, and identifying equilibrium points. Gain insights into utility, diminishing marginal utility, and pricing strategies through real-world examples like T-shirts and donuts. Enhance your economic knowledge with interactive worksheets and practical scenarios to deepen your understanding of market behaviors.

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Supply and Demand

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  1. Supply and Demand The Heart & Soul of Market Economics

  2. Wheat Trading Game Adam Smith(1723-90) • Free markets best promote the social welfare • Markets are naturally “self regulating” • Markets:Allocate scarce resources • Price: Determines “For Whom” • Supply & Demand: Determines “What is produced” • Buyers = Demand Sellers = Supply

  3. Pizza Worksheet $7 5 4 3 2 1 050 1 2 3 4 5 6

  4. Demand • The quantity of goods or services that consumers are willing and able to purchase at various prices Law of Demand Price Decrease Qty Demanded increases Inverse Relationship

  5. Price Quantity Drawing a Demand Curve • Why demand slopes downward: • Law of Diminishing Marginal Utility • Substitution Effect

  6. Supply • The quantity of a product or service that a firm is willing and able to sell at various prices Law of Supply Price increases Qty Supplied increases Positive Relationship

  7. Price Quantity Drawing a Supply Curve

  8. S1 -------------- P1 ------------- D1 Q1 Equilibrium occurs whenDemand = Supply T-Shirts Price E1 Qty

  9. Worksheet • Graphing S & D for CD’s

  10. $7 5 4 3 2 1 050 1 2 3 4 5 6

  11. Utility:means satisfaction Law of Diminishing Marginal Utility Marginal Utility: The amount of satisfaction a person gets from one additional unit of a product • As more units are consumed =>additional satisfaction declines

  12. Marginal Utility ↓ as Qty ↑ How should you price Donuts How much would YOU pay for 1 donut? How much would YOU pay for 12 donuts?

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