1. SUPPLY AND DEMAND

2. LAW OF DEMAND PRICES CHANGE AND PEOPLE BUY MORE OR LESS OF A PRODUCT. MUST BE WILLING AND ABLE TO BUY

3. DIMINISHING MARGINAL UTILITY UTILITY = SATISFACTION BUYING STOPS WHEN PRICE > UTILITY

4. THE DEMAND CURVE AS PRICE GOES UP, QUANTITY DEMANDED GOES DOWN

5. Demand Curve 3.00 2.50 2.00 1.50 1.00.50 0 050100150 200250 300 350 Slices of pizza per day Price per slice (in dollars)

6. DEMAND PRACTICE A LOCAL VIDEO STORE BEGINS TO DROP ITS PRICES. WHEN DVD’S RENT FOR $4.00 APIECE, THE STORE RENTS 200 IN A WEEKEND. FOR EVERY $0.50 THE PRICE DROPS, THE STORE RENTS 25 MORE DVD’S. DRAW A SCHEDULE AND CURVE ILLUSTRATING THIS.

7. SHIFT OF THE CURVE CETERIS PARIBUS SUBSTITUTES COMPLEMENTARY GOODS POPULATION

8. DEMAND CURVE SHIFTS CONSUMER TASTES AND ADVERTISING INCOME (NORMAL GOODS VS. INFERIOR GOODS)

9. ELASTICITY RESPONSIVENESS OF CONSUMERS TO PRICE CHANGE.

10. DETERMINANTS OF ELASTICITY SUBSTITUTES PERCENTAGE OF BUDGET TIME TO ADJUST TO PRICE CHANGE NECESSITY V. LUXURY

11. FIGURING ELASTICITY ELASTICITY = % CHANGE IN QTY. DEMANDED % CHANGE IN PRICE

12. ELASTICITY OF DEMAND YES = ELASTIC NO= INELASTIC CORNGASINSULIN DELAY PURCHASE? SUBS? BIG % OF INCOME?

13. LAW OF SUPPLY AS THE PRICE RISES FOR A GOOD, QUANTITY SUPPLIED RISES

14. PROFIT INCENTIVE HIGHER PRICES MAKE US WANT TO SELL MORE!

15. PRODUCTION COSTS FIXED COSTS VARIABLE COSTS TOTAL COSTS MARGINAL COST

16. LAW OF DIMINISHING MARGINAL RETURNS MARGINAL PRODUCT OF LABOR

17. DECIDING OUTPUT PROFIT= REVENUE – COST MARGINAL REVENUE = MARGINAL COST SHUT DOWN DECISION REVENUE<VARIABLE COST

18. Market Supply Curve Price (in dollars) Output (slices per day) 3.00 2.50 2.00 1.50 1.00.50 0 0500100015002000250030003500 Supply

19. ELASTICITY OF SUPPLY LESS TIME = LESS ELASTIC

20. SUPPLY CURVE SHIFTS PRICE OF INPUTS TECHNOLOGY NUMBER OF FIRMS

21. SUPPLY CURVE SHIFTS GOVERNMENT INFLUENCE FUTURE PRICE EXPECTATION IMPORT RESTRICTIONS

22. A local shoe factory produces 100 pairs of shoes each week, which sell for $20 a pair. Demand is high, and as the price rises, the factory produces 25 more pairs for every $5 increase. Draw a supply schedule and curve illustrating this. SUPPLY CURVE PRACTICE

23. $800 $600 $400 $200 0 Price QUANTITY EQUILIBRIUM POINT 12345 supply Demand E

24. CHANGE IN EQUILIBRIUM Price QUANTITY EQUILIBRIUM POINT 12345 supply Demand E $10 $8 $6 $4 New demand c b E2

25. SHORTAGE: SUPPLY<DEMAND

26. SURPLUS: SUPPLY>DEMAND

27. GOVERNMENT INTERVENTION PRICE CEILINGS RENT CONTROL PRICE FLOOR MINIMUM WAGE

28. PRICES IN THE FREE MARKET INCENTIVES SIGNALS FLEXIBILITY PROFIT INCENTIVE