1. The Market and Price System CHAPTER 3 © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

2. ◦Allocation Systems determine who gets goods and services and who does not. ◦A market is a place or service that enables buyers and sellers to exchange goods and services. ◦Barter is the exchange of goods and services directly, without the involvement of money. ◦Monetary exchanges involve exchanging money for goods and services. Markets and Exchange

3. Market © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. ◦A place or service that enables buyers and sellers to exchange goods and services ◦Refers to the interaction of buyers and sellers ◦May be a specific location, like the supermarket, or may be the exchanges of goods and services at many different locations, like the foreign exchange market

4. Bartering ◦The exchange of goods and services directly, without money. ◦Requires a double coincidence of wants. ◦The Internet has reduced the transaction costs of bartering. © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

5. Demand vs. Quantity Demanded © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. ◦Demand is the amount of a product that people are willing and able to purchase at each possible price during a given period of time. ◦The quantity demanded is the amount of a product that people are willing and able to purchase at one, specific price.

6. Law of Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. Law of Demand ◦As price of a good rises, consumers buy less. ◦As price of a good falls, consumers buy more. ◦Depicts the inverse quantity-price relationship with all else assumed to be constant.

7. Determinants of Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

8. Representations of Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. Demand Schedule: A list of prices and corresponding quantities demanded of a particular good or service. Demand Curve: A graph of the demand schedule with price on the vertical axis and quantity demanded on the horizontal axis.

9. Demand Schedule and Demand Curve for Access Time © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

10. Aggregation of Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

11. Aggregation of Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

12. Increases and Decreases in Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

13. Change in Demand and Quantity Demanded ◦Change in Demand - shift in entire demand curve in response to a change in a determinant of demand (a ceteris paribus variable). ◦Change in Quantity Demanded - movement along the same demand curve in response to a price change. © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

14. Change in Demand vs. Change in the Quantity Demanded © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

15. Factors that Shift Demand © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

16. Supply vs. Quantity Supplied ◦Supply is the amount of a good or service that producers are willing and able to offer for sale at each possible price during a period of time, all else constant. ◦The quantity supplied is the amount sellers are willing and able to offer for sale during a period of time at a specific price, all else constant. © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

17. Law of Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. Law of Supply ◦As the price of a product rises, producers will be willing to supply more, and vice versa. ◦The height of the supply curve at any quantity shows the minimum price necessary to induce producers to supply that next unit to market. ◦The height of the supply curve at any quantity also shows the opportunity cost of producing the next unit of the good.

18. Representations of Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. Supply Schedule: A table or list of the prices and corresponding quantities supplied of a particular good or service. It is the price-quantity relationship presented in tabular form. Supply Curve: A graph of the supply schedule with price on the vertical axis and quantity supplied on the horizontal axis.

19. Supply Schedule and Supply Curve for Access Time © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

20. Aggregation of Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

21. Aggregation of Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

22. Changes in Supply and Quantity Supplied ◦Change in Supply - shift in entire supply curve. ◦Change in Quantity Supplied - movement along the same supply curve in response to a price change. © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

23. Factors that Shift Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

24. Decrease in Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

25. Increase in Supply © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

26. Change in Supply vs. Change in the Quantity Supplied © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

27. Equilibrium Equilibrium is the price and quantity at which the quantity supplied and the quantity demanded are equal. A market is said to be in disequilibrium at all points at which the quantities demanded and supplied are not equal. ◦A surplus occurs whenever Qs>Qd. ◦A shortage occurs whenever Qd>Qs. ◦Surpluses and shortages can be resolved with price changes. © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

28. Equilibrium © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

29. Equilibrium © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

30. The Effects of a Shift of the Demand Curve © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

31. The Effects of a Shift of the Supply Curve © 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.