Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the...

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Market Economies Market Economies at Work: at Work: Supply and Demand Supply and Demand

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Transcript of Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the...

Page 1: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Market EconomiesMarket Economiesat Work:at Work:

Supply and DemandSupply and Demand

Page 2: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

DemandDemand$ The Desire for a Good or Service

and the Ability to Pay for It

Page 3: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Law of DemandLaw of Demand$ When Prices Fall Consumers Buy More

$ When Prices Rise Consumers Buy Less

Page 4: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Demand SchedulesDemand Schedulesand Curvesand Curves

Page 5: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

The Law of Diminishing The Law of Diminishing Marginal UtilityMarginal Utility

$ The Benefit from each Individual Unit Tends to decline

Page 6: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Factors Affecting DemandFactors Affecting Demand

$ Income

$ Market Size

$ Consumer Taste

$ Consumer Expectations

$ Substitutes

$ Complements

Page 7: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Elasticity of DemandElasticity of Demand

The Responsiveness of Consumers to The Responsiveness of Consumers to Changes in Price in a MarketChanges in Price in a Market

Page 8: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

What Determines ElasticityWhat Determines Elasticity

$ Substitute Goods/Services

$ Proportion of Income

$ Necessities vs Luxuries

Page 9: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Calculating ElasticityCalculating Elasticity

$ Businesses Have to Calculate Elasticity

$ Should they put Products on Sale? Will it increase the Number Sold?

$ Total Revenue Test: Will Selling MoreProducts at a Lower Price Make you More Money?

Page 10: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

SupplySupply

$ The Willingness and Ability of Producers to Offer Goods and Services for Sale

Page 11: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Law of SupplyLaw of Supply$ Producers are Willing to Sell More of a Good/Service at a High Price than a Low One

Page 12: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Supply SchedulesSupply Schedulesand Curvesand Curves

Page 13: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Cost of ProductionCost of Production

$ Labor Affects Production:Efficiency and Utilization

Page 14: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Costs of ProductionCosts of Production

$ Fixed Costs

$ Variable Costs

Page 15: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Factors Affecting SupplyFactors Affecting Supply$ Input Costs

$ Labor Productivity

$ Technology

$ Government Action

$ Producer Expectations

$ Number of Producers

Page 16: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Elasticity of SupplyElasticity of Supply

The Responsiveness of Producers to The Responsiveness of Producers to Price ChangesPrice Changes

Page 17: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Demand, Supply & Demand, Supply & PricesPrices

Page 18: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Shortage vs SurplusShortage vs Surplus

Supply > Demand = SurplusSupply > Demand = Surplus

Demand > Supply = ShortageDemand > Supply = Shortage

PricesPrices

PricesPrices

Page 19: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Reaching Equilibrium PriceReaching Equilibrium Price

40 Salads40 Salads $10 each$10 each Sells only 10Sells only 10

15 Salads15 Salads $4 each$4 each 50 requests50 requests

25 Salads25 Salads $6 each$6 each Sells 25Sells 25

Equilibrium ReachedEquilibrium Reached

Page 20: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Equilibrium Price in Real Equilibrium Price in Real LifeLife

DemandDemandoror

SupplySupply

DemandDemandoror

SupplySupply

Equilibrium Equilibrium PricePrice

Equilibrium Equilibrium PricePrice

Page 21: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Prices as Signals & IncentivesPrices as Signals & Incentives$ Competitive Pricing

$ Prices and Producers

$ Prices and Consumers

$20$20 $13$13

Rising Rising Prices?Prices?

Enter Enter MarketMarket

Falling Falling Prices?Prices?

Leave Leave MarketMarket

LowLowPrice?Price? BUY!!!BUY!!! HighHigh

Price?Price? DON’T BUY!!!DON’T BUY!!!

Page 22: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

High Price as Signal to Buy?High Price as Signal to Buy?

Page 23: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Intervention in the Price Intervention in the Price SystemSystem

$ Price Ceilings

$ Price Floors

Page 24: Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It.

Rationing Resources & Rationing Resources & ProductsProducts

$ World War II (other crises)

$ Black Markets

Unplanned Results of Rationing, or other Unplanned Results of Rationing, or other government regulationgovernment regulation


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Digital Desire ... creating demand for digital networks and services

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Supply and Demand. The Market Forces of Supply and Demand uSupply and demand are the forces that make market economies work. uMicroeconomics is basically.

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