The Circular Flow Model Supply and Demand

I) The Circular Flow Model A) This is a chart that shows how economic systems work and how firms and people fit into these economic systems

I) The Circular Flow Model B) There are 4 parts to this model

I) The Circular Flow Model B) There are 4 parts to this model 1) Product market- where the consumer sales take place

I) The Circular Flow Model B) There are 4 parts to this model 1) Product market- where the consumer sales take place 2) Factor market- where the sales of the factors of production take place

I) The Circular Flow Model B) There are 4 parts to this model 1) Product market- where the consumer sales take place 2) Factor market- where the sales of the factors of production take place 3) Firms

I) The Circular Flow Model B) There are 4 parts to this model 1) Product market- where the consumer sales take place 2) Factor market- where the sales of the factors of production take place 3) Firms

I) The Circular Flow Model B) There are 4 parts to this model 1) Product market- where the consumer sales take place 2) Factor market- where the sales of the factors of production take place 3) Firms 4) Households

Circular Flow Model Product Market Factor Market Firms Households LABOR UNFINISED GOODS FINISHED GOODS PRODUCT PURCHASE

Circular Flow Model Product Market Factor Market Firms Households $ $ $ $

II) The Law of Demand A) Demand- the willingness to buy a product at a particular price

II) The Law of Demand A) Demand- the willingness to buy a product at a particular price 1) Demand only occurs when a product is actually being sold

II) The Law of Demand A) Demand- the willingness to buy a product at a particular price 1) Demand only occurs when a product is actually being sold 2) The desire to have something is not demand

II) The Law of Demand A) Demand- the willingness to buy a product at a particular price 1) Demand only occurs when a product is actually being sold 2) The desire to have something is not demand Ex. Are you willing to buy a cd if it was $100.00?

II) The Law of Demand B) law of demand- people will buy more of a product at a lower price than they will at a higher price

II) The Law of Demand B) law of demand- people will buy more of a product at a lower price than they will at a higher price 1) ex. Would you buy more cd’s if they were only $1.00?

II) The Law of Demand B) law of demand- people will buy more of a product at a lower price than they will at a higher price 1) ex. Would you buy more cd’s if they were only $1.00?

II) The Law of Demand C) Demand can be shown in a table, known as a demand schedule Price# Sold $7010 $6020 $5030 $4040 $3050

II) The Law of Demand D) From this table you can construct a graph know as a demand curve

II) The Law of Demand E) Factors that change demand are known as determinants of demand

II) The Law of Demand E) Factors that change demand are known as determinants of demand 1) Tastes

II) The Law of Demand E) Factors that change demand are known as determinants of demand 1) Tastes 2) Income: more money=more purchases=higher demand

II) The Law of Demand 3) Price of Related Products: if another product can be used in place of another, then people will substitute (substitute goods)

II) The Law of Demand 3) Price of Related Products: if another product can be used in place of another, then people will substitute (substitute goods) a) ex. Price of hotdogs drops, while hamburgers stay the same, more hotdogs will be purchased

II) The Law of Demand 3) Price of Related Products: if another product can be used in place of another, then people will substitute (substitute goods) a) ex. Price of hotdogs drops, while hamburgers stay the same, more hotdogs will be purchased b) complimentary goods are used with each other

II) The Law of Demand 3) Price of Related Products: if another product can be used in place of another, then people will substitute (substitute goods) a) ex. Price of hotdogs drops, while hamburgers stay the same, more hotdogs will be purchased b) complimentary goods are used with each other –1. Ex. Gasoline and cars, if gas prices go up, car sales decrease

II) Law of Demand 4) Number of potential customers: are there too many purchasers or not enough?