1. Chapter 3 Demand and Supply

2. Circular Flow Model  What things flow from each sector of the economy?  From Firms?  From Households?

3. Demand  Willingness/ Ability to buy at a certain price.  Law of Demand  Demand Schedule  Demand Curve

4. Demand VS. Q demanded  Price change for Good A causes:  Movement along demand curve for good A.  Does NOT change Demand  Change in any of the 5 Determinants of Demand.  Demand curve SHIFTS.

5. Determinants of Demand (Shift in Curve)  Tastes  Income  Income Rise= Demand Rise  Price of related products  Substitute goods  Hot Dogs vs. Hamburgers  Complementary goods  Products used with each other  Cars and Gas (SUV’s)  Number of Potential Customers  Future Expectations

6. The Law of Supply  Supply  # of units firm is willing to sell  Diminishing returns  Cost of producing additional items increases  Law of supply  Higher prices = higher quantity supplied

7. Changes in Supply  Costs of Production  Increased cost = decreased supply  Changes in the FOP  Wages increase= supply decrease  Technology Improvements  Taxation (corp)  Regulation  Labor Laws  Currency (Import costs)  Unexpected events

8. Surplus, Shortages, and Equilibrium  Point of Equilibrium

9. Surpluses (excess supply)

10. Shortages (excess demand)

11. Minimum Wage and Equilibrium  Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labor force. Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount—and, if it is not, that worker is unlikely to be employed.

12. Elasticity  Effect of the change in price on Demand  Price Inelastic  Price doesn’t affect demand  Ex. Water  Steeper Curve  Price Elastic  Demand very sensitive to Price  Flatter Curve

13. Which of these is most elastic? Why?

14. What real world event could cause this action?

15. What could cause this?

16. What real world event could cause this action?