Unit 2: Elements of a Market Economy Chapter 4: Demand Chapter 5: Supply Chapter 6: Price Chapter 7: Competition

Chapter 4: Demand Lesson 1: Defining Demand Lesson 2: Changes in Demand Lesson 3: Demand Elasticity

Lesson 1: Defining Demand First, market, is the exchange between buyers and sellers of goods/services The Law of Demand The higher the price the less people will buy Graphing the Law of Demand Let’s turn to page 50… Substitution effect… is there a sub? Law of diminishing marginal utility When you start losing your desire for a product/service after your initial purchase

Lesson 2: Changes in Demand Analyzing Market Demand See page 54, Figure 4.2 Causes of Shifts in Demand Price Income Population Complements (items used together) Substitutes Personal preferences Special influences Umbrellas Fads Expectations

Lesson 3: Demand Elasticity Price Elasticity of Demand – how sensitive consumers are to price changes Elastic and Inelastic Demand Elastic Change in price seriously changes demand Inelastic Change in price doesn’t seriously change demand

Effects of Elasticity Example: Vegetables Inelastic items In season – relatively low priced Can be purchased in various forms if price rises Inelastic items Insulin Laundry detergent What effects elasticity? Time Percentage of income spent on an item Competition

Chapter 5: Supply Lesson 1: Defining Supply Lesson 2: Production and Supply Lesson 3: Changes in Supply

Lesson 1: Defining Supply The Law of Supply The higher the price the more suppliers will offer for sale; if price falls so will quantity supplied Profit motive Supply schedule (pg. 64) Supply curve Analyzing Market Supply Market supply is the total of all of the individual companies within a market

Lesson 2: Production and Supply The Law of Variable Proportions output or supply will change as one resource varies, even if the others do not Production schedule (page 68) Marginal product – extra output or change by adding one unit of a factor of production Stages of Production Supply increases Total product increase but by smaller amounts Negative returns

Lesson 3: Changes in Supply Why Supply Rises and Falls Productivity Government Taxes Regulations Opinions Competition Supply Elasticity Measured by how quickly the quantity supplied changes as a result of a price change Production capabilities

Chapter 6: Price Lesson 1: Why Price Matters Lesson 2: Supply, Demand & Price Lesson 3: Controlling Prices

Lesson 1: Why Price Matters Market Signals Rise in prices says to producers to make more Rise in prices says to consumers buy less Fall in prices says to producers make less Fall in prices says to consumers buy more Shortage: demand is greater than supply Rationing = limiting demand Surplus: supply is greater than demand Equilibrium price: quantity demanded is equal to quantity supplied Market Forces

Lesson 2: Supply, Demand, & Price Establishing a Price Equilibrium amount Turn to page 84 Explaining Shifts in Equilibrium Price

Lesson 3: Controlling Prices Price Ceilings Maximum price government sets for a product/service Rent control Rationing Black market Price Floors Lowest price government sets for a product/service Minimum wage Price support – a government action to increase the price of a product. Government usually purchases the product. Communication in the Market taxes

Chapter 7: Competition Lesson 1: Market Structures & Perfect Competition Lesson 2: Imperfect Competition Lesson 3: No Competition

Lesson 1: Market Structures & Perfect Competition Amount of competition that exists in an industry Perfect Competition A market structure in which thousands of independent firms produce identical products for consumers Thousands of buyers & sellers Identical products No price controls Complete information Easy entry & exit Limited controls by government

Lesson 2: Imperfect Competition Monopolistic Competition Monopoly Many sellers and buyers Differentiated products Toothpaste Limited control over price Good access to information Relatively easy entry & exit Small role of government Oligopoly Few firms Differentiated or identical products Cars, cereal, fast-foot Greater influences on price Limited information Difficulty in entry or exit patents Larger role of government

Lesson 3: No Competition Characteristics of a Monopoly One firm Unique product Electricity Control over price Complete information Extreme difficulty of entry/exit Significant role of government Antitrust laws Merger Horizontal merger Vertical merger Conglomerate

Types of Monopoly Natural Government Technological Geographic Water, gas, electric companies Government Post office Technological Drug industry Geographic Small town with one grocery store