1 / 29

The Principles of Our Market Economy

The Principles of Our Market Economy. I. The Circular Flow of Economic Activity. What is the Circular Flow of Economic Activity?. A healthy market depends on a flow of resources, goods, and services. II. Expanding the Circular Flow. How is the Cicular Flow Expanded?.

phoebe
Download Presentation

The Principles of Our Market Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Principles of Our Market Economy

  2. I. The Circular Flow of Economic Activity What is the Circular Flow of Economic Activity? • A healthy market dependson a flow of resources, goods, and services

  3. II. Expanding the Circular Flow How is the Cicular Flow Expanded? • You are involved in exchanges with multiple businesses! • Producers (business owners) need not just labor, but land and raw materials • Also tools, machines

  4. III. Supply and Demand How are Supply and Demand Related? • Producers (buisness) and Individuals (buyers) act both as buyers and sellers • Both are involved in exchanging goods and services • In a Free Enterprise the Market Determines: • How much is being produced • The cost of a good or service Competition

  5. III. Supply and Demand Cont. • When there is competition the market works according to the laws of supply and demand • What happens when people make choices!

  6. What do you think? • What determines the price of pizza, gasoline, a car wash, or other goods and services?

  7. IV. The Law of Demand? How Does the Law of Demand Work? • tells us the quantity of a good that buyers wish to buy at each price • As price of a good or service goes down the quantity consumers wish to buy will increase • Therefore, the demand curve is downward-sloping

  8. 4 3 2 Demand 8 12 16 The Daily DemandCurve for Pizza in Chicago Price ($ per slice) Quantity (1000s of slices per day)

  9. Why do buyers purchase a greater quantity at lower prices and vice-versa? • The substitution effect • The income effect • Law of Diminishing Marginal Utility (extra satisfaction)

  10. V. Buyers and Sellers In Markets • The Substitution Effect • The change in the quantity demanded of a good that results because buyers switch to substitutes when the price of the good changes

  11. V. Buyers and Sellers In Markets • The Income Effect • The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power

  12. V. Buyers and Sellers In Markets • Diminishing Marginal Utility • The change in the quantity demanded of a good that results because the amount of satisfaction gained by the consumer decreases with each additional unit consumed

  13. Will the opportunity cost of producing additional units of pizza increase or decrease?

  14. VI. Balancing Cost and Benefits • A producer’s cost is determined by how much it costs to produce an item • The price a buyer pays for each item = the benefit for the producer • The higher the price the better for the producer!

  15. 4 3 2 Demand 8 12 16 The Daily DemandCurve for Pizza in Chicago Price ($ per slice) Quantity (1000s of slices per day)

  16. Why do buyers purchase a greater quantity at lower prices and vice-versa? • The substitution effect • The income effect • Law of Diminishing Marginal Utility (extra satisfaction)

  17. VII. Buyers and Sellers In Markets • The Substitution Effect • The change in the quantity demanded of a good that results because buyers switch to substitutes when the price of the good changes

  18. VII. Buyers and Sellers In Markets • The Income Effect • The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power

  19. VII. Buyers and Sellers In Markets • Diminishing Marginal Utility • The change in the quantity demanded of a good that results because the amount of satisfaction gained by the consumer decreases with each additional unit consumed.

  20. Will the opportunity cost of producing additional units of pizza increase or decrease?

  21. Balancing Cost and Benefits • A producer’s cost is determined by how much it costs to produce an item • The price a buyer pays for each item = the benefit for the producer • The higher the price the better for the producer!

  22. The Law of Supply How does the Law of Supply Work? • the quantity of a good that sellers wish to sell at each price

  23. Supply 4 3 2 8 12 16 The Daily SupplyCurve for Pizza in Chicago Price ($ per slice) Quantity (1000s of slices per day)

  24. Market Price • The Price at which buyers and sellers agree to trade

  25. Buyers and Sellers In Markets • Diminishing Marginal Utility • The change in the quantity demanded of a good that results because the amount of satisfaction gained by the consumer decreases with each additional unit consumed.

More Related