Presentation Transcript

1. Economics – Supply and Demand

   Chapters 4, 5 & 6
2. Demand The Law of Demand As Price Increases, Demand Decreases As Price Decreases, Demand Increases
3. Law of Demand Substitution Effect Lower Priced Alternatives Income Effect “Feeling” rich, “Feeling” poor
4. Demand Schedules Market Demand Schedule Individual Demand Schedule Price of a slice of pizza Quantity demanded per day Price of a slice of pizza Quantity demanded per day $.50 $1.00 $1.50 $2.00 $2.50 $3.00 5 4 3 2 1 0 $.50 $1.00 $1.50 $2.00 $2.50 $3.00 300 250 200 150 100 50 Demand Schedule
5. Market Demand Curve 3.00 2.50 2.00 1.50 1.00 .50 0 Price per slice (in dollars) 200 250 350 300 0 50 100 150 Slices of pizza per day The Demand Curve Demand Price P Quantity Demanded Q Ceteris Paribus Outside Factors can Change the Curve
6. Shifting Demand Advertising Consumer Income Superior Goods Vs Inferior Goods Consumer Expectations Consumer Tastes
7. Price of Related Goods Complements Substitutes
8. Elasticity of Demand Elastic Demand Inelastic Demand
9. Graphic Representation
10. Factors Affecting Elasticity Availability of Substitutes Time Volume Purchased Necessities Vs Luxuries Needs vs. Wants
11. Supply The Law of Supply As Price Increases, Supply Increases, As Price Decreases, Supply Decreases
12. Market Supply Schedule Price per slice of pizza Slices supplied per day $.50 1,000 $1.00 1,500 $1.50 2,000 $2.00 2,500 $2.50 3,000 $3.00 3,500 Supply Schedule
13. Market Supply Curve 3.00 2.50 2.00 1.50 1.00 .50 0 Supply Price (in dollars) 0 500 1000 1500 2000 2500 3000 3500 Output (slices per day) Supply Curve Price P Quantity Supplied Q
14. Elasticity of Supply Elastic Supply Inelastic Supply
15. Elasticity of Supply and Time Short Run Products that take little time to make Ex- Music Long Run Products that take long periods of time to make Ex- Oranges
16. Marginal Product of Labor Labor (number of workers) Output (beanbags per hour) Marginal product of labor 0 0 — 1 4 4 2 10 6 3 17 7 4 23 6 5 28 5 6 31 3 7 32 1 8 31 –1 Labor and Output Marginal Product of Labor Increasing Returns Diminishing Returns Negative Returns
17. Costs of Production Output Costs Revenues Profits Revenue - Cost Costs Fixed Cost Variable Costs Total Costs Fixed Cost + Variable Cost Marginal Costs Revenues Marginal Revenue Total Revenue Marginal Revenue X Output
18. Production Costs Output(per hour) Fixed cost Variable cost Total cost Marginal cost Marginal revenue Total revenue Profit 0 1 2 3 4 $36 36 36 36 36 $0 8 12 15 20 $36 44 48 51 56 — $8 4 3 5 $24 24 24 24 24 $0 24 48 72 96 $–36 –20 0 21 40 5 6 7 8 36 36 36 36 27 36 48 63 63 72 84 99 7 9 12 15 24 24 24 24 120 144 168 192 57 72 84 93 9 10 11 12 36 36 36 36 82 106 136 173 118 142 172 209 19 24 30 37 24 24 24 24 216 240 264 288 98 98 92 79 Costs of Production
19. Shutdown Decisions The goal of all business is profit Marginal Revenues > Marginal Costs Operating a Failing Business Fixed Costs do not disappear Total Revenues > Variable Costs
20. Changes in Supply Technology Scarcity & Shortage The Government Subsidies Excise Taxes Regulation Future Expectations Globalization
21. Finding Equilibrium Equilibrium Point Combined Supply and Demand Schedule $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $.50 Price of pizza Quantity demanded Quantity supplied Result $ .50 300 100 Shortage from excess demand Price per slice a Equilibrium Price $1.00 250 150 $1.50 200 200 Equilibrium Equilibrium Quantity $2.00 150 250 Supply Demand Surplus from excess supply $2.50 100 300 0 50 100 150 200 250 300 350 350 $3.00 50 Slices of pizza per day Equilibrium
22. Disequilibrium Disequilibrium Excess Demand Excess Supply Government Intervention Price Ceilings Ex- Rent Control Price Floors Ex- Minimum Wage