1. Economics – Supply and Demand
Chapters 4, 5 & 6

2. Demand The Law of Demand As Price Increases, Demand Decreases
As Price Decreases, Demand Increases

3. Law of Demand Substitution Effect Income Effect
Lower Priced Alternatives
Income Effect
“Feeling” rich, “Feeling” poor

4. Individual Demand Schedule Market Demand Schedule
Demand Schedules
Individual Demand Schedule
Price of a slice of pizza
Quantity demanded
per day
Market Demand Schedule
Price of a slice of pizza
Quantity demanded
per day
$.50
$1.00
$1.50
$2.00
$2.50
$3.00 5 4 3 2 1
$.50
$1.00
$1.50
$2.00
$2.50
$3.00
300
250
200
150
100 50

5. Price per slice (in dollars)
The Demand Curve
Market Demand Curve
3.00
2.50
2.00
1.50
1.00
.50 50
100
150
200
250
300
350
Slices of pizza per day
Price per slice (in dollars)
Price P
Quantity Demanded Q
Ceteris Paribus
Outside Factors can Change the Curve
Demand

6. Shifting Demand Advertising Consumer Income Consumer Expectations
Superior Goods Vs Inferior Goods
Consumer Expectations
Consumer Tastes

7. Price of Related Goods
Complements
Substitutes

8. Elasticity of Demand
Elastic Demand
Inelastic Demand

9. Graphic Representation

10. Factors Affecting Elasticity
Availability of Substitutes
Time
Volume Purchased
Necessities Vs Luxuries
Needs vs. Wants

11. Supply The Law of Supply As Price Increases, Supply Increases,
As Price Decreases, Supply Decreases

12. Price per slice of pizza Slices supplied per day
Supply Schedule
$.50
1,000
Price per slice of pizza
Slices supplied per day
Market Supply Schedule
$1.00
1,500
$1.50
2,000
$2.00
2,500
$2.50
3,000
$3.00
3,500

13. Output (slices per day)
Supply Curve
Price P
Quantity Supplied Q
Market Supply Curve
Price (in dollars)
Output (slices per day)
3.00
2.50
2.00
1.50
1.00
.50
500
1000
1500
2000
2500
3000
3500
Supply

14. Elasticity of Supply
Elastic Supply
Inelastic Supply

15. Elasticity of Supply and Time
Short Run
Products that take little time to make
Ex- Music
Long Run
Products that take long periods of time to make
Ex- Oranges

16. Labor and Output Marginal Product of Labor Increasing Returns
Diminishing Returns
Negative Returns
Marginal Product of Labor
Labor (number of workers)
Output (beanbags per hour)
Marginal product of labor — 1 4 2 10 6 3 17 7 4 23 6 5 28 31 3 7 32 1 8 –1

17. Costs of Production Output Costs Revenues Profits Costs Revenues
Revenue - Cost
Costs
Fixed Cost
Variable Costs
Total Costs
Fixed Cost + Variable Cost
Marginal Costs
Revenues
Marginal Revenue
Total Revenue
Marginal Revenue X Output

18. Costs of Production Production Costs Total revenue Profit
Marginal revenue
Marginal cost
Total cost
Variable cost
Fixed cost
Output (per hour)
$–36
–20 21 40 1 2 3 4 $0 24 48 72 96
$24 — $8 5
$36 44 51 56 8 12 15 20 36 57 72 84 93 5 6 7 8
120
144
168
192 24 9 12 15 63 99 27 36 48 98 92 79
216
240
264
288 24 19 30 37 36 9 10 11 12 82
106
136
173
118
142
172
209

19. Shutdown Decisions The goal of all business is profit
Marginal Revenues > Marginal Costs
Operating a Failing Business
Fixed Costs do not disappear
Total Revenues > Variable Costs

20. Changes in Supply Technology Scarcity & Shortage The Government
Subsidies
Excise Taxes
Regulation
Future Expectations
Globalization

21. Combined Supply and Demand Schedule
Equilibrium
Price per slice
Equilibrium Point
Finding Equilibrium
Price of pizza
Quantity demanded
Quantity supplied
Result
Combined Supply and Demand Schedule
$ .50
300
100
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$.50
Slices of pizza per day 50
150
200
250
350
Supply
Demand
$2.00
$2.50
$3.00
150
100 50
250
300
350
Surplus from excess supply
$1.00
250
150
Shortage from excess demand
$1.50
200
Equilibrium
Equilibrium Price a
Equilibrium Quantity

22. Disequilibrium Disequilibrium Government Intervention Excess Demand
Excess Supply
Government Intervention
Price Ceilings
Ex- Rent Control
Price Floors
Ex- Minimum Wage