1. SUPPLY AND DEMAND
CH 4 SEC 2
CH 5 SEC 1
CH 6 SEC 2

2. Chapter 4 Section 2
The Law of Demand

3. I. Explain the causes of a change in quantity demanded.
A. Microeconomics
Branch of economics that deals with behavior and decision making by small units such as an individual or business.

4. I. Explain the causes of a change in quantity demanded.
B. Demand
Combination of desire, ability, and willingness to buy a product.
C. Law of Demand
The demand for an economic product varies inversely with its price.
When prices goes up, demand goes down
When prices go down, demand goes up

5. What is a demand schedule
What is a demand schedule? The numerical representation of the inverse relationship between price and quantity.

6. Can you show me a model? A demand curve
the graphic representation of the inverse relationship between price and quantity demanded
a demand schedule that has been graphed D

7. I. Explain the causes of a change in quantity demanded.
D. Change in the quantity demanded
A change in the quantity of the product purchased in response to a change in price.
Move from one point on the demand curve to a new point on the same demand curve.
Income Effect and Substitution Effect

8. What is the difference between demand and quantity demanded
A quantity demanded is determined by price
A change in price will cause a change in quantity demanded
Graphically, it is a movement from one point on the curve to another

9. I. Explain the causes of a change in quantity demanded.
D. Change in the quantity demanded
Income Effect
Change in quantity demanded because of a change in the consumer’s real income due to a change in price.
Substitution Effect
Change in quantity demanded because of a change in the relative price of the product.

10. II. Describe the factors that could cause a change in demand.
Consumers demand different amounts at every price, causing the demand curve to shift to the left or the right
Demand increases – shift right
Demand decreases – shift left
Income, tastes, related products

11. Well, what is a change in demand?
Demand is the whole curve.
It is determined by the five non-price determinants.
A change in one of those will cause a change in demand.
Graphically, it is a shift of the entire curve
Price D3 D2 D1
Quantity

12. II. Describe the factors that could cause a change in demand.
Consumer Income
If income increases, you buy more
If income decreases, you buy less
Consumer Taste
If you prefer something, you buy more
If you dislike something, you buy less

13. II. Describe the factors that could cause a change in demand.
Prices of related products
Substitutes
Products that can be used in place of other products – Coke vs. Pepsi
Complements
Products that tend to be used together – Coffee and Cream

14. III. Understand diminishing marginal utility.
A. Marginal Utility
Extra usefulness or satisfaction from acquiring one more unit of a product.
B. Diminishing Marginal Utility
The more units of a certain economic product a person acquires, the less eager that person is to buy more.

15. Chapter 5 Section 1
The Law of Supply

16. I. Understand the meaning and concept of supply.
A. Supply
Schedule of quantities offered for sale at all possible prices in a market.
B. Law of Supply
Economic principle stating that the quantity supplied varies directly with its price
Price goes up, supply goes up
Price goes down, supply goes down

17. II. Explain difference between supply schedule and curve.
C. Supply Schedule
Quantity demand on the x axis - Price per unit on the y axis. Points to be plotted.
D. Supply Curve
Slopes upward and to the right.

18. Supply Schedule

19. Can you show me a model? A supply curve
The graphic representation of the direct relationship between price and quantity supplied.
It is a supply schedule that has been graphed

20. III. Explain change in quantity supplied.
A. Change in the quantity supplied
Quantity supplied
Amount that producers bring to the market at any one price.
Change in the quantity supplied
Change in amount offered for sale in response to a change in price.
Move from one point on the supply curve to a new point on the same supply curve.

21. What is the difference between supply and quantity supplied?
Quantity supplied is determined by price.
A change in price will cause a change in quantity supplied.
Graphically, it is a movement from one point on a supply curve to another. S
Price P2 P1 Q1 Q2
Quantity

22. IV. Specify the reasons for a change in supply.
A. Changes in supply
Producers offer different amounts of products for sale at all possible prices in the market.
Supply increases – shift right
Supply decreases – shift left
Number of reasons for shifts

23. So, what’s the story on changes in supply?
Supply is the whole curve.
It is determined by the five non-price determinants of supply.
A change in one of those will cause a change in supply
Graphically, it is a shift of the curve S1
Price S3
Quantity

24. IV. Specify the reasons for a change in supply.
A. Changes in supply
1) Costs of Inputs – what its takes to make the product
2) Productivity - efficiency increases supply
3) Technology – can be good or bad
4) Number of sellers – competition

25. IV. Specify the reasons for a change in supply.
A. Changes in supply
5) Taxes and Subsidies
Taxes increase the costs to make the product
Subsidies are government payments to an individual or business to encourage or protect a certain type of economic activity.

26. IV. Specify the reasons for a change in supply.
A. Changes in supply
6) Expectations – if a supplier thinks prices are going up they will withhold supply.
7) Government regulations – restricts supply.

27. How Prices are Determined
Chapter 6 Section 2
How Prices are Determined

28. I. Understand how prices are determined in competitive markets.
A. The Adjustment Process
1) Moves toward market equilibrium
Situation in which prices are relatively stable and the quantity supplied is equal to quantity demanded.

29. Demand and Supply S
Equilibrium Pe D Qe

30. I. Understand how prices are determined in competitive markets.
A. The Adjustment Process
2) Surplus
Situation in which the quantity supplied is greater than the quantity demanded at a given price.
If there is a surplus, the price is likely to decrease.

31. Surplus S
Qs>Qd
Surplus D
Amount of the surplus Qd Qs

32. I. Understand how prices are determined in competitive markets.
A. The Adjustment Process
3) Shortage
Situation in which the quantity demanded is greater than the quantity supplied at a given price.
If there is a shortage, the price is likely to increase.

33. Shortage
Amount of the shortage S
Qd>Qs
Shortage D Qd Qs

34. I. Understand how prices are determined in competitive markets.
A. The Adjustment Process
4) Equilibrium Price
The price that creates neither a shortage nor a surplus.
Intersection of supply and demand curves.
Price where q supplied is = q demanded

35. II. Explain the importance of an economic model.
A. Economic Model
A set of assumptions that can be used to help analyze behavior and predict outcomes.
1) Listed in a table
2) Illustrated with a graph
3) Stated algebraically

36. Changes in Demand S
Pe3
Pe1
Pe2 D3 D2 D1
Qe2
Qe1
Qe3

37. Changes in Supply S2 S
Pe2 S3
Pe1
Pe3 D
Qe3
Qe2
Qe1

38. Changes in Demand and SupplyPe D2 D1
Qe2
Qe1

39. Changes in Demand and Supply
Pe2
Pe1 D2 D1
Qe2
Qe1