Market Economies at Work: Supply and Demand

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Presentation transcript:

Market Economies at Work: Supply and Demand

Demand The Desire for a Good or Service and the Ability to Pay for It

Law of Demand When Prices Fall Consumers Buy More When Prices Rise Consumers Buy Less

Demand Schedules and Curves

The Law of Diminishing Marginal Utility The Benefit from each Individual Unit Tends to decline

Factors Affecting Demand Income Market Size Consumer Taste Consumer Expectations Substitutes Complements

The Responsiveness of Consumers to Changes in Price in a Market Elasticity of Demand The Responsiveness of Consumers to Changes in Price in a Market

What Determines Elasticity Substitute Goods/Services Proportion of Income Necessities vs Luxuries

Calculating Elasticity Businesses Have to Calculate Elasticity Should they put Products on Sale? Will it increase the Number Sold? Total Revenue Test: Will Selling More Products at a Lower Price Make you More Money?

Supply The Willingness and Ability of Producers to Offer Goods and Services for Sale

Law of Supply Producers are Willing to Sell More of a Good/Service at a High Price than a Low One

Supply Schedules and Curves

Cost of Production Labor Affects Production: Efficiency and Utilization

Costs of Production Fixed Costs Variable Costs

Factors Affecting Supply Input Costs Labor Productivity Technology Government Action Producer Expectations Number of Producers

The Responsiveness of Producers to Price Changes Elasticity of Supply The Responsiveness of Producers to Price Changes

Demand, Supply & Prices

Demand > Supply = Shortage Supply > Demand = Surplus Shortage vs Surplus Demand > Supply = Shortage Prices Supply > Demand = Surplus Prices

Reaching Equilibrium Price 40 Salads $10 each Sells only 10 15 Salads $4 each 50 requests 25 Salads $6 each Sells 25 Equilibrium Reached

Equilibrium Price in Real Life Demand or Supply Equilibrium Price Demand or Supply Equilibrium Price

Prices as Signals & Incentives Competitive Pricing Prices and Producers Prices and Consumers $20 $13 Rising Prices? Enter Market Falling Prices? Leave Market Low Price? BUY!!! High Price? DON’T BUY!!!

High Price as Signal to Buy?

Intervention in the Price System Price Ceilings Price Floors

Rationing Resources & Products World War II (other crises) Black Markets Unplanned Results of Rationing, or other government regulation