2. Ch. 4 - Demand Sect. 1 - Understanding Demand Demand - The desire to own something and the ability to pay for it Law of Demand - The lower the price of a good, the higher the quantity demanded - the higher the price, the lower the quantity demanded Demand Curve - A graph that represents the law of demand for a given good or service

3. 0 Quantity Price $ 1 2 345 1 2 3 4 5

4. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Demand Curve

6. Law of Demand

7. Sect. 2 - Shifts in the Demand Curve Ceteris paribus - Latin for “all other things held constant” - a demand curve is accurate only as long as this is true - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left

8. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Increase in Demand

9. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Decrease in Demand

10. Sect. 2 - Shifts in the Demand Curve Ceteris paribus - Latin for “all other things held constant” - a demand curve is accurate only as long as this is true - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left Causes of shift in demand curve: Change in Income - Increased income increases demand for “normal goods” - decreases demand for “inferior goods”

13. Sect. 2 - Shifts in the Demand Curve Ceteris paribus - Latin for “all other things held constant” - a demand curve is accurate only as long as this is true - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left Causes of shift in demand curve: Change in income - Increased income increases demand for “normal goods” - decreases demand for “inferior goods”

14. 13 Quick Check: If your income increases, your demand for inferior goods will _____________? If your income decreases, your demand for normal goods will _____________? decrease

15. Change in population / demographics - Increase or decrease will shift demand curve Consumer expectations - E xpectations about the future can affect our demand for certain goods Example: Hurricane is coming Change in tastes and advertising - Fads and promoted goods

18. 0 Quantity Price $ 1 2 345 1 2 3 4 5 6 Demand Curve for Fad Items

19. 0 Quantity Price $ 1 2 345 1 2 3 4 5 6 Demand Curve for Fad Items

20. Change in population / demographics - Increase or decrease will shift demand curve Consumer expectations - E xpectations about the future can affect our demand for certain goods Example: Hurricane is coming Change in tastes and advertising - Fads and promoted goods

21. Change in Demand Curve

22. Substitute Goods - Goods that are used in place of another good - as the price of a good increases consumers buy less of it - so the demand for its substitute increases

23. 0 Quantity Price $ 123 1 2 3 4 5 A B 4 Decrease in Quantity Demanded for Butter Quantity Price $ 1 2 3 1 2 3 4 5 4 Increase in Demand for Margarine 0

24. Compliments - Two goods that are bought and used together - as the price of a good increases consumers buy less of it - so the demand for its compliment also decreases

25. 0 Quantity Price $ 123 1 2 3 4 5 A B 4 Decrease in Quantity Demanded for Hotdogs Quantity Price $ 1 2 3 1 2 3 4 5 4 Decrease in Demand for Buns 0

26. 25 Quick Check: If the price of a good increases, the demand for a substitute good will _____________? If the price of a good decreases, the demand for a compliment good will _____________? increase

28. Section 3 - Elasticity of Demand Elasticity of Demand - A measure of how consumers respond to price changes Elastic - demand is very sensitive to price change small change in price = large change in quantity demanded Inelastic - demand is not very sensitive to price change large change in price = small change in quantity demanded

29. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Elastic or Inelastic? Elastic - Small change in price = large change in quantity demanded

30. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Elastic or Inelastic? Inelastic - Large change in price = small change in quantity demanded

31. Section 3 - Elasticity of Demand Elasticity of Demand - A measure of how consumers respond to price changes Elastic - demand is very sensitive to price change small change in price = large change in quantity demanded Inelastic - demand is not very sensitive to price change large change in price = small change in quantity demanded Calculating Elasticity of Demand - Percentage change in quantity demanded Percentage change in price Greater than 1 = elastic Less than 1 = inelastic Elasticity of 1 = Unitary Elastic Elasticity =

32. 0 Quantity Price $ 1 2 345 1 2 3 4 5 % change in quantity demanded - % change in price - = 1.5 (elastic) 50 33

33. 0 Quantity Price $ 1 2 345 1 2 3 4 5 % change in quantity demanded - % change in price - = 4 (elastic) 100 25

34. 0 Quantity Price $ 1 2 345 1 2 3 4 5 % change in quantity demanded - % change in price - =.4 (inelastic) 20 50

35. 0 Quantity Price $ 1 2 345 1 2 3 4 5 % change in quantity demanded - % change in price - =.75 (inelastic) 25 33

36. Section 3 - Elasticity of Demand Elasticity of Demand - A measure of how consumers respond to price changes Elastic - demand is very sensitive to price change small change in price = large change in quantity demanded Inelastic - demand is not very sensitive to price change large change in price = small change in quantity demanded Calculating Elasticity of Demand - Percentage change in quantity demanded Percentage change in price Greater than 1 = elastic Less than 1 = inelastic Elasticity of 1 = Unitary Elastic Elasticity =

37. Factors Affecting Elasticity - Availability of Substitutes - Less substitutes = less elastic demand More substitutes = more elastic demand Luxury vs. Necessity - Pepsi / Coke vs. prescription medicine

38. Elasticity

39. Ch. 5 - Supply Sect. 1 - Understanding Supply Supply - The amount of goods or services available Law of Supply - Producers offer more of a good as its price increases and less as its price falls Market entry - Rising prices draw new firms into a market and add to the quantity supplied of a good

40. Supply Curve - A graph that represents the law of supply for a good or service

41. 0 Quantity Price $ 1 2 345 1 2 3 4 5

42. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Supply Curve

43. Supply Curve - A graph that represents the law of supply for a good or service

44. Supply Curve

45. Supply Curve - A graph that represents the law of supply for a good or service Elasticity of Supply - How firms respond to changes in the price of a good - Supply is inelastic in the short term - More elastic in the long term

46. Sect. 2 - Costs of Production Marginal Product of Labor - The change in output from hiring one more worker - measures the change in output at the margin Increasing Marginal Returns - When the marginal product of labor increases as the number of workers increases Diminishing Marginal Returns - When the marginal product of labor decreases as the number of workers increases

49. Sect. 2 - Costs of Production Marginal Product of Labor - The change in output from hiring one more worker - measures the change in output at the margin Increasing Marginal Returns - When the marginal product of labor increases as the number of workers increases Diminishing Marginal Returns - When the marginal product of labor decreases as the number of workers increases

50. Fixed Costs - A cost that does not change no matter how much of a good is produced. - cost of the building, machinery, rent, property taxes Variable Costs - Costs that rise or fall depending on the quantity produced - the cost of raw materials, labor, electricity Total Cost - Fixed costs + variable costs

51. Production Costs

52. Fixed Costs - A cost that does not change no matter how much of a good is produced. - cost of the building, machinery, rent, property taxes Variable Costs - Costs that rise or fall depending on the quantity produced - the cost of raw materials, labor, electricity Total Cost - Fixed costs + variable costs

53. Marginal Cost - The additional cost of producing one more unit Marginal Revenue - The additional income from selling one more unit - Does not change because each unit sells for the same price Total Revenue - The price of each unit X total units sold Output - The best level of output is where marginal revenue is equal to marginal cost

55. (marginal price) (new marginal price)

57. Optimum Output

58. Oil Changes per Hour Fixed Cost Variable Cost Total Cost Marginal Cost Marginal Revenue Total Revenue Profit 0$35$0$35$0$20$0$–35 1$35$11$46$11$20 $–26 2$35$20$55$20 3$35$24$59$20 4$35$31$66$20 5$35$40$75$20 6$35$51$86$20 7$35$64$99$20 8$35$82$117$20 9$35$107$142$20 10$35$137$172$20

59. Oil Changes per Hour Fixed Cost Variable Cost Total Cost Marginal Cost Marginal Revenue Total Revenue Profit 0$35$0$35$0$20$0$–35 1$35$11$46$11$20 $–26 2$35$20$559$20 3$35$24$594$20 4$35$31$667$20 5$35$40$759$20 6$35$51$8611$20 7$35$64$9913$20 8$35$82$11718$20 9$35$107$14225$20 10$35$137$17230$20

60. Oil Changes per Hour Fixed Cost Variable Cost Total Cost Marginal Cost Marginal Revenue Total Revenue Profit 0$35$0$35$0$20$0$–35 1$35$11$46$11$20 $–26 2$35$20$559$2040 3$35$24$594$2060 4$35$31$667$2080 5$35$40$759$20100 6$35$51$8611$20120 7$35$64$9913$20140 8$35$82$11718$20160 9$35$107$14225$20180 10$35$137$17230$20200

61. Oil Changes per Hour Fixed Cost Variable Cost Total Cost Marginal Cost Marginal Revenue Total Revenue Profit 0$35$0$35$0$20$0$–35 1$35$11$46$11$20 $–26 2$35$20$559$2040-15 3$35$24$594$20601 4$35$31$667$208014 5$35$40$759$2010025 6$35$51$8611$2012034 7$35$64$9913$2014041 8$35$82$11718$2016043 9$35$107$14225$2018038 10$35$137$17230$2020028

62. Marginal Cost - The additional cost of producing one more unit Marginal Revenue - The additional income from selling one more unit - Does not change because each unit sells for the same price Total Revenue - The price of each unit X total units sold Output - The best level of output is where marginal revenue is equal to marginal cost

63. Sect. 3 - Changes in Supply Effect of Rising Costs - A rise in the cost of inputs will cause a fall in supply because the good is more expensive to produce - a fall in the cost of an input will cause an increase in supply

65. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Decrease in Supply

66. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Increase in Supply

67. Sect. 3 - Changes in Supply Effect of Rising Costs - A rise in the cost of inputs will cause a fall in supply because the good is more expensive to produce - a fall in the cost of an input will cause an increase in supply Technology - Advances in technology can lower production costs - causes a rightward shift in the supply curve

68. Sect. 3 - Changes in Supply Effect of Rising Costs - A rise in the cost of inputs will cause a fall in supply because the good is more expensive to produce - a fall in the cost of an input will cause an increase in supply Technology - Advances in technology can lower production costs - causes a rightward shift in the supply curve Subsidy - A government payment that supports a business or market - A payment to increase or decrease production

69. Excise Tax - A tax on the production or sale of a good - Increases cost - reduces supply Regulation - Government intervention in a market that increases production cost - reduces supply Where Firms Produce - Transportation costs - cost to transport raw materials vs. cost to transport finished good

70. Ch. 6 - Prices Sect. 1 - Combining Supply and Demand Equilibrium - The point at which the demand for a good is equal to supply

71. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Demand Supply Equilibrium

73. Ch. 6 - Prices Sect. 1 - Combining Supply and Demand Equilibrium - The point at which the demand for a good is equal to supply Disequilibrium - When quantity supplied is not equal to quantity demanded Shortage - When quantity demanded is greater than quantity supplied - solved by raising price and increasing production

74. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Demand Supply Shortage

75. Ch. 6 - Prices Sect. 1 - Combining Supply and Demand Equilibrium - The point at which the demand for a good is equal to supply Disequilibrium - When quantity supplied is not equal to quantity demanded Shortage - When quantity demanded is greater than quantity supplied - solved by raising price and increasing production Surplus - When quantity supplied is greater than quantity demanded - solved by lowering price and decreasing production

76. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Demand Supply Surplus

77. Ch. 6 - Prices Sect. 1 - Combining Supply and Demand Equilibrium - The point at which the demand for a good is equal to supply Disequilibrium - When quantity supplied is not equal to quantity demanded Shortage - When quantity demanded is greater than quantity supplied - solved by raising price and increasing production Surplus - When quantity supplied is greater than quantity demanded - solved by lowering price and decreasing production

78. Price Ceiling - Maximum price that can legally be charged for a good or service

79. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Shortage Demand Supply Price Ceiling

80. Price Ceiling - Maximum price that can legally be charged for a good or service Price Floor - Minimum price that must be paid for a good or service

81. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Surplus Demand Supply Price Floor

82. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Shortage Demand Supply Price Ceiling

83. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Surplus Demand Supply Price Floor

84. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Demand Supply

85. 0 Quantity Price $ 1 2 345 1 2 3 4 5 Demand Supply

86. Price Ceiling - Maximum price that can legally be charged for a good or service Price Floor - Minimum price that must be paid for a good or service Minimum Wage - Minimum price that an employer can pay a worker for one hour of labor - set by federal government

87. 0 Quantity of Workers Wage $ 10 20 304050 2 4 $6.00 $8.00 10 Demand for Labor Supply of Labor Minimum Wage

88. 0 Quantity of Workers Wage $ 10 20 304050 2 4 $6.00 $8.00 10 Demand for Labor Supply of Labor

89. Minimum Wage

90. Price Ceiling - Maximum price that can legally be charged for a good or service Price Floor - Minimum price that must be paid for a good or service Minimum Wage - Minimum price that an employer can pay a worker for one hour of labor - set by federal government Sect. 2 - Changes in Market Equilibrium Increase in Supply - A shift to the right in the supply curve will change the equilibrium price and quantity

91. Quantity Price $ 1 2 345 1 2 3 4 5 0 New Equilibrium X Demand Supply

92. Digital Cameras

93. Price Ceiling - Maximum price that can legally be charged for a good or service Price Floor - Minimum price that must be paid for a good or service Minimum Wage - Minimum price that an employer can pay a worker for one hour of labor - set by federal government Sect. 2 - Changes in Market Equilibrium Increase in Supply - A shift to the right in the supply curve will change the equilibrium price and quantity

94. Supply Curve Shift

95. Decrease in Supply - When factors cause a supply curve to shift to the left - An increase in the costs of resources to produce a good - An increase in labor costs

96. 0 Quantity Price $ 1 2 345 1 2 3 4 5 New Equilibrium X Demand Supply

97. Decrease in Supply - When factors cause a supply curve to shift to the left - An increase in the costs of resources to produce a good - An increase in labor costs Increase in Demand - Shift in demand curve to the right - Leads to a shortage / new equilibrium price

98. 0 Quantity Price $ 1 2 345 1 2 3 4 5 New Equilibrium X Demand Supply

99. Decrease in Supply - When factors cause a supply curve to shift to the left - An increase in the costs of resources to produce a good - An increase in labor costs Increase in Demand - Shift in demand curve to the right - Leads to a shortage / new equilibrium price Decrease in Demand - Shift in demand curve to the left - Leads to a surplus / new equilibrium price

100. 0 Quantity Price $ 1 2 345 1 2 3 4 5 New Equilibrium X Demand Supply

101. Decrease in Supply - When factors cause a supply curve to shift to the left - An increase in the costs of resources to produce a good - An increase in labor costs Increase in Demand - Shift in demand curve to the right - Leads to a shortage / new equilibrium price Decrease in Demand - Shift in demand curve to the left - Leads to a surplus / new equilibrium price

102. Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase or decrease. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply

103. Demand Curve Shift

104. Sect. 3 - The Role of Price Price as an Incentive - Financial reward motivates both consumers and producers - rising prices for producers / falling prices for consumers Rationing - Response to a shortage - forced decrease in demand - Resources used where most needed Black Market - When producers and consumers conduct business outside of Govt. control of price or quantity - Illegal - throws the system out of balance

105. The End