Microeconomics: Market & Exchange Unit 3

First You Must Understand the Law of Supply and Demand As demand increases the price goes up which attracts new suppliers who increase the supply bringing the price back to normal. However, in the marketing, of high price (prestige) goods, such as perfumes, jewelry, watches, cars, liquor, a low price may be associated with low quality, and may reduce demand.

Supply Curve http://www.netmba.com /econ/micro/supply/curv e/ The higher the price, the larger of the quantity supplied if all other things stay constant.

Demand Curve http://www.netmba.com /econ/micro/demand/cur ve/ Quantity demanded moves in the opposite direction of price if all other things stay constant.

Signals Sent to Buyers & Sellers Price of Other Goods Number of Sellers Price of Relevant Inputs Technology Expectations Customer Preference Prices of Related Goods Income Number of Potential Buyers Expectations of Price Changes

How Markets Interact with Consumers We will analyze several examples of how consumers are effected by production. Look at Lesson Five- Activity 2: Markets Interact- The Sequel. You will also need the handout called Visual 2.2: Changes in Supply/Demand.

Business Organizations Sole Proprietorship Partnership Run by one person No distinction between owner and business All assets and debts are the proprietor’s. Owned by more than one person. Combine property together Share profits and debts together

Business Organizations Corporation Non-Profit Separate legal entity from the owners and employees. A corporation has members and officers. (President, Vice- President, Secretary, Treasury, etc.) Has a publically registered charter If a corporation fails, all investments are split up with the members. The liabilities are not shared with its members. Does not have private owners. They have controlling boards or members. They cannot sell their shares for profit or benefit personally in any way. They are tax exempt.

Models of Market Structure Perfect Competition Monopolistic Competition 1. All firms sell an identical product. 2. All firms are price takers. 3. All firms have a relatively small market share. 4. Buyers know the nature of the product being sold and the prices charged by each firm. 5. The industry is characterized by freedom of entry and exit. 1. All firms produce similar yet not perfectly substitutable products. 2. All firms are able to enter the industry if the profits are attractive. 3. All firms are profit maximizers. 4. All firms have some market power, which means none are price takers.

Models of Market Structure Oligopoly/Cartel Monopoly It is similar to a monopoly but instead of one firm controlling the market, there are at least two controlling the market. This can also be referred to as a cartel to fix prices. Examples: BP/Shell and Coke/Pepsi Only one firm controls the market. Examples: Standard Oil, Microsoft, and the Bell Companies Monopolies are against the law in the United States because of the Anti-Trust Acts.

Role of the Stock Market The Stock Market is the center of the United States economy. You do not have to have money invested on the market for an effect to be felt. Companies agree to sell stocks of their companies. The stocks can be sold but depending on what the stocks are worth that day will determine whether you receive a profit or a loss. It is your job to pick stock that is traded on the Stock Market. You are to track that stock every day to see how much it is worth at the end of the week. You will have to sell your stocks to see if you made a profit or took a loss. Imagine that you have $10,000.00 to invest in the stock market. What are you going to invest in?

Distinguish Between… Fixed Costs Variable Costs A cost that does not vary depending on production or sales, such as rent, property taxes, insurance, or interest expense. A cost of labor, material or overhead that changes according to the change in the volume of production units. Combined with fixed costs, variable costs make up the total cost of production. While the total variable cost changes with increased production, the total fixed costs stays the same.

Analyze the Influence Improved Factors of Production Has Had on Industry What are the factors of production? Natural Resources, Human Resources, Capital Resources, and Entrepreneurship Discuss how each of these have been influenced by the following: Technology, Education, Training, Specialization, and Division of Labor. This will be a classroom discussion. You must participate in order to receive an assessment.