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SUPPLY AND DEMAND

SUPPLY AND DEMAND. HOW DOES A MARKET ECONOMY REQUIRE THESE FORCES TO WORK, AND WORK WELL?. RE-CAP. IN A MARKET ECONOMY: COMAPNIES/BUSINESSES PRODUCE GOODS OR SERVICES COMPANIES/BUSINESSES WANT PROFITS CONSUMERS WANT GOODS OR SERVICES

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SUPPLY AND DEMAND

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  1. SUPPLY AND DEMAND HOW DOES A MARKET ECONOMY REQUIRE THESE FORCES TO WORK, AND WORK WELL?

  2. RE-CAP • IN A MARKET ECONOMY: • COMAPNIES/BUSINESSES PRODUCE GOODS OR SERVICES • COMPANIES/BUSINESSES WANT PROFITS • CONSUMERS WANT GOODS OR SERVICES • COMPANIES/BUSINESSES COMPETE TO GIVE CONSUMERS WHAT THEY WANT • CONSUMERS WANT TO GET A “BARGAIN” • FREE MARKET ALLOWS FOR COMPETITION AND PRODUCTION OF GOODS DEMANDED BY THE CONSUMERS • REGULATIONS ARE FEW SINCE “LAISSEZ-FAIRE” IS OBSERVED

  3. WHAT IS DEMAND? • THE DESIRE TO PURCHASE SOMETHING AT A SPECIFIED PRICE AND TIME ACCOMPANIED BY THE ABILITY AND WILLINGNESS TO PAY • DEMAND AND WANT ARE NOT THE SAME THING • YOU MAY WANT A NEW CAR BUT…. • YOU DEMAND IT ONLY WHEN YOU CAN ACTUALLY BUY IT

  4. DEMAND • JOE HAS A CAR WHICH REQUIRES GASOLINE • GAS PRICES ARE AS FOLLOWS: PRICE PER GALLON GALLONS PER WEEK $3.00 5 $2.50 10 $2.00 15 $1.50 20 $1.00 25 $.50 30

  5. GAS DEMAND/DEMAND CURVE

  6. WHAT HAPPENED? • PEOPLE BUY LESS OF SOMETHING AT HIGHER PRICES THAN THEY DO AT LOWER PRICES • THIS IS CALLED……PRICE EFFECT or LAW of DEMAND

  7. PRICE ELASTICITY OF DEMAND • Also known as : ELASTICITY • or – ELASTICITY OF DEMAND

  8. WHAT IS THIS? • IF WE NEED IT, WE BUY IT • IF THE PRICE IS LOW AND WE NEED IT, WE BUY LOTS OF IT • IF THE PRICE CHANGES – EVEN UP TO 200% AND WE NEED IT, WE STILL BUY IT….. • WHAT IF WE DON’T NEED IT – WE JUST WANT IT?

  9. H2O SCENARIO AT THE MALL • IN THE MALL I’M THIRSTY – I NEED…. WATER • I’M EXPECTING TO PAY = $1.00 BUT THE WATER = $2.00 WILL I BUY THE WATER? Yes I will – WHY?

  10. T-SHIRT SCENARIO AT THE MALL • H&M – STORE FOR FAIRLY INEXPENSIVE YET TRENDY STUFF HAS T-SHIRTS FOR SALE • I EXPECT TO PAY $10 FOR A T-SHIRT THERE • BUT THE T-SHIRT IS ACTUALLY $15 WILL I BUY THE T-SHIRT? NO I WON’T– WHY NOT?

  11. ELASTIC vs. INELASTIC WANTS: LUXURY GOODS NEEDS: NECESSITIES • LESS LIKELY TO BUY THESE GOODS IF THE PRICE IS HIGH • BUT IF PRICE DROPS….MAYBE WE’LL BUY • WILL BUY THESE GOODS EVEN IF PRICE CHANGES – BECAUSE WE NEED THEM!

  12. FACTORS OF ELASTICITY UNLESS THERE ARE SUBSTITUTES for particular goods or services, we identify goods as ELASTIC or INELASTIC WHEN a GOOD or SERVICE has no SUBSTITUTE – it becomes INELASTIC

  13. ANOTHER WAY TO LOOK AT IT: • CONSIDER ELASTIC AS A CHANGE YOU ARE RESPONSIVE TO • CONSIDER INELASTIC AS A CHANGE YOU ARE IRRESPONSIVE TO

  14. SUPPLY in all of this….. • PRICE IS CHANGED BY DEMAND – • PRICE DOES NOT CHANGE SUPPLY – SUPPLY CHANGES PRICE

  15. BOOK SCENARIO • THERE IS AN ECONOMICS BOOK WITH ALL THE ANSWERS TO YOUR FRIDAY QUIZZES • I ONLY HAVE ONE COPY – MY SUPPLY IS LOW • HOW MUCH WOULD YOU PAY FOR THE BOOK? • MS. GOOD COMES IN WITH 100 OF THESE BOOKS – HOW MUCH WOULD YOU PAY FOR THE BOOK? • WHAT CHANGES????

  16. WHERE SUPPLY AND DEMAND COLLIDE…. • WHEN SUPPLY AND DEMAND INTERSECT – WE HAVE MARKET EQUILIBRIUM ALSO KNOWN AS “THE IDEAL PRICE”

  17. REAL WORLD ECO…. • OPEC – ORGANIZATION FOR PETROLEUM EXPORTING COUNTRIES RESTRICTS THE SUPPLY OF OIL TO ALLOW THE PRICE TO GO UP

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