MICROECONOMICS Unit 3. Market  Arrangement that allows buyers and sellers to exchange things  Production side Supply Factors of production  Consumption.

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Presentation transcript:

MICROECONOMICS Unit 3

Market  Arrangement that allows buyers and sellers to exchange things  Production side Supply Factors of production  Consumption side Demand Determinants of demand

Demand  Amount of a good desired at a given price in a specific time

Graphing  The price is always located on the vertical axis and quantity is always located on the horizontal axis.  Numbers increase as they move away from the origin. 0 0 $ Q

Graphing Demand  Demand Schedule  Ice Cream SundaePrice

Graphing Demand  Demand Curve $ Q D

Law of Demand  Demand increases as price decreases  Demand decreases as price increases  Inverse Relationship

Quantity Demanded  Quantity demanded is caused by a change in price  All other factors remain the same

Elasticity  How sensitive a product is to a change in price  Elastic – very responsive  Inelastic – not responsive

Elasticity Graphed $ Q ED ID

Calculating Elasticity  Run over Rise % Quantity % Price PRACTICE ( = 1) Price of Gasoline up from $3.50 to $3.60 while quantity demanded down from 6000 gallons to 5900 gallons. Price of candy down from $3.00 to $2.50 while quantity demanded up from 30 bags to 40 bags. Quantity of Senior Sweats down from 305 to 300 sets while price up from $30 to $35.

Income Effect  The change in consumption resulting from a change in real income  Normal Good  Reacts normally or follows the law of demand  Inferior Good  Demand decreases as income increases “Great Cracker Taste Test”

Changes in Demand  Changes in the Determinants of Demand cause changes in Demand at every Price  Determinants of Demand Income Attitude Substitute Complement 

Increase in Demand $ D Q D2

Effects of Determinants  Increase Demand  Get a raise  Popular advertisement  No substitute choices  New products to go with the original

Decrease in Demand $ Q DD2

Effects of Demand  Decrease Demand  Lose your job  Fad not popular anymore  New competitor in the market  Complement not available anymore

Critical Thinking  Income  Attitude  Substitute  Complement  Price D = curve shifts left or right Qd = movement is on the curve

Exit Slip  Use the blank half sheet of paper to make up a scenario in which demand will change over time.  Name the product  Describe the change in the market  State which determinant changed  Graph the changes on demand Don’t forget to put you name on the paper Due at the end of the period