1. Unit 2: Elements of a Market Economy
Chapter 4: Demand
Chapter 5: Supply
Chapter 6: Price
Chapter 7: Competition

2. Chapter 4: Demand Lesson 1: Defining Demand
Lesson 2: Changes in Demand
Lesson 3: Demand Elasticity

3. Lesson 1: Defining Demand
First, market, is the exchange between buyers and sellers of goods/services
The Law of Demand
The higher the price the less people will buy
Graphing the Law of Demand
Let’s turn to page 50…
Substitution effect… is there a sub?
Law of diminishing marginal utility
When you start losing your desire for a product/service after your initial purchase

4. Lesson 2: Changes in Demand
Analyzing Market Demand
See page 54, Figure 4.2
Causes of Shifts in Demand
Price
Income
Population
Complements (items used together)
Substitutes
Personal preferences
Special influences
Umbrellas
Fads
Expectations

5. Lesson 3: Demand Elasticity
Price Elasticity of Demand – how sensitive consumers are to price changes
Elastic and Inelastic Demand
Elastic
Change in price seriously changes demand
Inelastic
Change in price doesn’t seriously change demand

6. Effects of Elasticity Example: Vegetables Inelastic items
In season – relatively low priced
Can be purchased in various forms if price rises
Inelastic items
Insulin
Laundry detergent
What effects elasticity?
Time
Percentage of income spent on an item
Competition

7. Chapter 5: Supply Lesson 1: Defining Supply
Lesson 2: Production and Supply
Lesson 3: Changes in Supply

8. Lesson 1: Defining Supply
The Law of Supply
The higher the price the more suppliers will offer for sale; if price falls so will quantity supplied
Profit motive
Supply schedule (pg. 64)
Supply curve
Analyzing Market Supply
Market supply is the total of all of the individual companies within a market

9. Lesson 2: Production and Supply
The Law of Variable Proportions
output or supply will change as one resource varies, even if the others do not
Production schedule (page 68)
Marginal product – extra output or change by adding one unit of a factor of production
Stages of Production
Supply increases
Total product increase but by smaller amounts
Negative returns

10. Lesson 3: Changes in Supply
Why Supply Rises and Falls
Productivity
Government
Taxes
Regulations
Opinions
Competition
Supply Elasticity
Measured by how quickly the quantity supplied changes as a result of a price change
Production capabilities

11. Chapter 6: Price Lesson 1: Why Price Matters
Lesson 2: Supply, Demand & Price
Lesson 3: Controlling Prices

12. Lesson 1: Why Price Matters
Market Signals
Rise in prices says to producers to make more
Rise in prices says to consumers buy less
Fall in prices says to producers make less
Fall in prices says to consumers buy more
Shortage: demand is greater than supply
Rationing = limiting demand
Surplus: supply is greater than demand
Equilibrium price: quantity demanded is equal to quantity supplied
Market Forces

13. Lesson 2: Supply, Demand, & Price
Establishing a Price
Equilibrium amount
Turn to page 84
Explaining Shifts in Equilibrium Price

14. Lesson 3: Controlling Prices
Price Ceilings
Maximum price government sets for a product/service
Rent control
Rationing
Black market
Price Floors
Lowest price government sets for a product/service
Minimum wage
Price support – a government action to increase the price of a product. Government usually purchases the product.
Communication in the Market
taxes

15. Chapter 7: Competition
Lesson 1: Market Structures & Perfect Competition
Lesson 2: Imperfect Competition
Lesson 3: No Competition

16. Lesson 1: Market Structures & Perfect Competition
Amount of competition that exists in an industry
Perfect Competition
A market structure in which thousands of independent firms produce identical products for consumers
Thousands of buyers & sellers
Identical products
No price controls
Complete information
Easy entry & exit
Limited controls by government

17. Lesson 2: Imperfect Competition
Monopolistic Competition
Monopoly
Many sellers and buyers
Differentiated products
Toothpaste
Limited control over price
Good access to information
Relatively easy entry & exit
Small role of government
Oligopoly
Few firms
Differentiated or identical products
Cars, cereal, fast-foot
Greater influences on price
Limited information
Difficulty in entry or exit
patents
Larger role of government

18. Lesson 3: No Competition
Characteristics of a Monopoly
One firm
Unique product
Electricity
Control over price
Complete information
Extreme difficulty of entry/exit
Significant role of government
Antitrust laws
Merger
Horizontal merger
Vertical merger
Conglomerate

19. Types of Monopoly Natural Government Technological Geographic
Water, gas, electric companies
Government
Post office
Technological
Drug industry
Geographic
Small town with one grocery store