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Cause
In communities around the country, people and firms act in their own best interest to answer the 3 basic economic questions.
Effect
Developing out of this process are MARKETS.
What is Demand?
Definition The desire, ability, and willingness to buy a product.
In order for demand to be counted in the market place, 2 conditions must exist.
What is Microeconomics?
Definition:
Part of the economy that deals with behavior and decision-making by small units (individuals, business firms).
Knowledge of microeconomic concepts helps explain how prices are determined, and how individual economic decisions are made.
What is Quantity-demanded?
Definition Describes the amount of a G/S that a consumer is willing and able to buy at each particular price during a given time period.
of G/S consumers are willing and able to buy at ALL prices that might prevail in the market at a given time.
demand schedule. Illustrates the quantity that consumers will demand at each and every price. Downward sloping. Price
Demand Curve
Quantity Demanded
Law of Demand
Other things equal, consumers buy more of a
product when the price decreases, and less when the price increases.
When price goes up Q-demanded goes down. When price goes down Q-demanded goes up.
Income Effect
Substitution Effect
When the price of a good changes, consumers have a tendency to substitute a similar, lower priced product for another product that is relatively more expensive.
Utility
Marginal Utility WHY IT MATTERS
Usefulness of a product OR Amount of satisfaction an individual receives from consuming a product. Extra usefulness or satisfaction a person gets from acquiring one more unit of a product. As consumers, we want to get the most useful and satisfying combination of G/S when spending our $$$.
most MU from the 1st donut, and each additional donut gave some MU but not as must as the first.
As consumers, you would continue to buy (consume) a product until eventually you reach negative utility.
A Change in Quantity-Demanded
Movement along the demand curve Shows a change in the quantity of the product purchased in response to a change in price, other things equal. Example:
Price 400 200
Quantity Demanded
Other things equal , a change in any of the five non -price determinants of demand shift the ENTIRE demand curve left or right, and this means a different quantity will be demanded at each and every price.
D1
D2
D2
D1
Quantity Demanded
Quantity Demanded
What are some factors that may influence changes in tastes and preferences?
C.T./C.P. = D C.T./C.P. = D
demand goes up
P
D1
Qd
D2
D2
Qd
D1
D1
D2
D2
D1
Quantity Demanded
Quantity Demanded
Demand Shifters
Change in Price/Availability of Substitute Goods
Demand Shifters
Change in Price/Availability of Complement Goods
Caused by a change in one of the four non-price determinants of Change in demand, other things equal. demand Illustrated by a shift of the entire demand curve left or right.
Define
What images come to mind when you hear this term?
Elasticity of Demand
Measures how sensitive consumers are to a change in
price.
Have you ever bought a product that you needed and the cost was not important?
x 100
Elastic
Responsive to a change in price spending habits altered Demand Elasticity Calculation > 1
Unit Elastic
Change in price causes a proportional change in quantitydemanded
Demand Elasticity Calculation = 1
Inelastic
Unresponsive to a change in price spending habits not impacted Demand Elasticity Calculation < 1
Quantitydemanded
Price
Generalization
Elastic demand results in a drop in Total Revenue as price . Inelastic demand results in a rise in Total Revenue as price .
What is Supply?
Definition The ability and willingness of producers to offer products for sale at various prices during a given time period.
What is Quantity-supplied?
Definition Describes the amount of a G/S that a producer is willing to see at each particular price during a given time period.
supply schedule. Illustrates the quantity that producers will supply at each and every price. Supply Upward sloping. Price
Curve
Quantity Supplied
Law of Supply
Other things equal, producers will supply more of a
product when the price increases, and less when the price decreases.
When price goes up Q-supplied goes up. When price goes down Q-supplied goes down.
PROFIT MOTIVE
A Change in Quantity-Supplied
Movement along the supply curve Shows a change in the quantity of the product supplied in response to a change in price, other things equal. Example:
Price 400 200
Quantity Supplied
4 mil
8 mil
7. Future Expectations
Remember: Suppliers want to sell more at a higher price. Anything that will affect the cost of producing a product will impact the quantity supplied at each and every price.
Changes in Supply
The following situations
will lower the costs of production, thus supply and shifting the supply curve .
Cost of resources Taxes Subsidies Government regulations Technology / Productivity Number of sellers* Future expectations*
will raise the costs of production, thus supply and shifting the supply curve .
Cost of resources Taxes Subsidies Government regulations Technology / Productivity Number of sellers* Future expectations*
Supply
S2 S1
Quantity Supplied
Quantity Supplied
Rightward Shift
Leftward Shift
Change Caused by a change in the price of the product, other things equal. in quantitysupplied Illustrated by a movement along the current supply curve.
Caused by a change in one of the seven non-price determinants of supply, other things equal. Illustrated by a shift of the entire supply curve left or right.
Change in Supply
Hypothesize How do you think the goals of buyers and sellers differ?
Buyers
Buy more at lower prices
Sellers
Sell more at higher prices
Result
Compromise is needed to balance the forces of supply and demand
Hypothesize How do you think the goals of buyers and sellers differ?
Market Equilibrium
At a given price, quantity supplied equals quantity demanded Everyone is happy!
At a lower price
Consumers want to buy more Producers want to supply less
At a higher price
Consumers want to buy less Producers want to supply more
Government Intervention
To achieve social goals, the government fixes prices.
Cause
Effect
Price Ceiling
Government sets a maximum legal price that can be
Rent Control
Consequence: A Black Market could develop and goods/services are exchanged illegally at prices higher than the official market price.
Price Floor
Government sets a minimum legal price that can be
Persistent Surplus
Persistent Shortage