Markets, Demand and Supply, and the Price System Chapter 3 Markets, Demand and Supply, and the Price System Economics, 8th Edition Boyes/Melvin

Copyright © Cengage Learning. All rights reserved. Markets and Exchange Allocation Systems determine who gets goods and services and who does not. A market is a place or service that enables buyers and sellers to exchange goods and services. Barter is the exchange of goods and services directly, without the involvement of money. Monetary exchanges involve exchanging money for goods and services. Copyright © Cengage Learning. All rights reserved.

Copyright © Cengage Learning. All rights reserved. Allocation Systems Who gets the goods and services? Government determined First come first served Lottery System—random The Market System—income earners buy goods and services Copyright © Cengage Learning. All rights reserved.

Copyright © Cengage Learning. All rights reserved. Which System Works? Fairness--none of the systems are fair, scarcity means someone gets left out. Incentives increase supplies and raise standards of living in a market system. Copyright © Cengage Learning. All rights reserved.

Copyright © Cengage Learning. All rights reserved. Markets Markets enable the exchange of goods and services. Service NYSE eBay Place Supermarket The Mall Copyright © Cengage Learning. All rights reserved.

How Much?

How come he received more scholarship money than me??!!

Stock Market

Why does Kobe make more than a doctor?

Demand The desire, ability, and willingness to buy a product.

Demand Demand Schedule - The listing (table) that shows the various quantities (amounts) demanded of a particular product at different prices. Demand Curve - Graph showing the quantity demanded at each and every price that the product may have. Shows us how price affects demand.

Law of Demand When a product’s price is lower, consumers will buy more of it. When a product’s price is higher, consumers will buy less of it. Price Demand Inverse Relationship Price Demand

Demand Curve Change in quantity demanded - Movement along the curve that shows the change in the amount purchased in response to different prices. Change in demand - When things other than price affect demand. The graph will shift to the right if there is more demand or shift to the left if there is less demand.

Reasons a Demand Curve will Shift Consumer Income: Income increases - curve shifts right; Income decreases - curve shifts left Consumer Tastes: Good advertisement or celebrity endorsement - curve shifts right; Product goes out of style - curve shifts left Substitutes: Price of substitute goes up - curve shifts right; Price of substitute goes down - curve shifts left

Reasons a Demand Curve will Shift Complements: related goods, use of one increases the use of the other Price of complement goes up - curve shifts left; Price of complement goes down - curve shifts right Change in Expectations: If you expect something better to come out - curve shifts left; If you expect something to be scarce in the future - curve shifts right Number of Consumers: More consumers - curve shifts right; Less consumers - curve shifts left

Which determinate of demand explains the change in demand. There are negative reports in the news about the safety ratings on Chevrolet vehicles. If personal income tax rates increase, the demand for most normal goods will decrease. An increase in the price of ice cream will cause consumers to buy fewer ice cream cones. A famous athlete advertises the product. As the birth rate decreases, the number of people in the market for diapers and other baby items decreases.

Law of Supply Suppliers offer more for sale at high prices. Supplier offer less for sale at low prices.

Supply Supply Schedule - listing of the various quantities (amounts) of a particular product supplied at all possible prices in the market Supply Curve - graph showing the various quantities supplied at each and every price that a product might have in the market

Supply Change in quantity supplied - the amount offered for sale in response to a change in price. Causes movement along the supply curve Change in supply is when suppliers offer different amounts of products for sale at all possible prices in the market Cause the curve to shift

Factors that cause the supply curve to shift Cost of inputs: Cost of inputs (such as labor or packaging) drops, producers are willing to supply more, and the curve shifts to the right Cost of inputs rises, producers offer fewer products for sale and the curve shifts to the left.

Factors that cause the supply curve to shift Productivity: Workers are more productive, more of a product will be produced at every price, curve will shift right. When workers are unproductive, less of a product will be produced, the curve will shift left.

Factors that cause the supply curve to shift Technology: New technology lowers the cost of production and increases productivity, which shifts the curve to the right. Sometimes the equipment breaks down which causes a business to be less productive, and the supply curve shifts to the left.

Factors that cause a supply curve to shift Expectations: If a business thinks the price of a product will go up, then they will decrease their supply for now and the supply curve will shift left. If a business thinks the price will be lower in the future, then they will want to produce and sell as many as they can now, so supply will increase and the curve will shift to the right

Factors that cause the supply curve to shift Government Regulation: When the government establishes tighter regulations, less is produced, curve shifts left When there is is not much government regulation, supply increases, curve shifts right

Factors that cause the supply curve to shift Number of Sellers: When a lot of sellers enter the market, more is supplied, and the curve shifts to the right When sellers exit the market, less is supplied, and the curve shifts to the left.

The price of wood pulp rises. How does that affect the supply of paper? If Nabisco stopped producing chocolate chip cookies, what would happen to the supply of cookies? The price of manicures goes up. How does that affect the supply of manicures? The price of the i-phone 5 will go down in a year. How does that affect the supply of the i-phone 5 today?

The use of 360-degree, zero-turn lawn mowers allows lawn-service providers to mow twice as many lawns in a given day. What happens to the supply of lawn service?

Price Floors and Ceilings Price Floor: price is not allowed to decrease below a certain level. Examples: minimum wage, agricultural price supports. Price Ceiling: price is not allowed to increase above a certain level. Example: rent controls. Copyright © Cengage Learning. All rights reserved.

Copyright © Cengage Learning. All rights reserved. A Price Floor Copyright © Cengage Learning. All rights reserved.

Copyright © Cengage Learning. All rights reserved. Rent Controls Copyright © Cengage Learning. All rights reserved.