Presentation on theme: "CHAPTER 20 AND 21 SUPPLY AND DEMAND. CHAPTER 20: DEMAND Supply and Demand determines trade: 1.Buyers purchase goods and services with money 2.Sellers."— Presentation transcript:
CHAPTER 20: DEMAND Supply and Demand determines trade: 1.Buyers purchase goods and services with money 2.Sellers get money for selling goods and services -The price is relative to the amount buyers are willing to trade and the amount sellers are willing to trade for both groups to be happy. -Price is determined between an equilibrium between those that demand and those that sell. What is demand? A Ferrari? A trip to Europe? Do you demand these?
DEMAND Demand: desire, willingness, and ability to buy a good or service at various prices. For demand to exist: 1)Consumer must want to buy a product 2)Be willing to buy the product 3)Have the resources available to purchase the product
DEMAND SCHEDULE Table that lists the various prices and quantities of a product or service that someone is willing to buy over a range of possible prices. Marginal Benefit of the 85 th bushel is 80. Total Revenue = price X quantity in a time period Price (per bushel)Quantity Demanded for Wheat (bushels per month) 9045 8565 8085 75105 70125
Graph that shows the amount of a product that would be bought at all possible prices in the market. Price (vertical) and Quantity (Horizontal) Law of demand: quantity demanded and price move in opposite directions (people will buy less the more an item costs and vice versa). Market demand: the total demand of all consumers within you market.
UTILITY Utility: the pleasure, usefulness, or satisfaction one gets from a good or service (varies for each person) => the resulting feeling from using a product Marginal utility: the additional satisfaction for each additional unit consumed. Diminishing marginal utility: the principle that our additional satisfaction, or marginal utility, tends to weaken as more units of a product are consumed. - The lower the diminishing marginal utility, the better for the seller or producer
SHIFTS IN DEMAND CREATED BY A NON-PRICE DETERMINANT!!! The price remains the same, but quantity would change. -More demand => shifts to the right -Less demand => shifts to the left 1.Change in Population (number of consumers): population increase/decrease 2.Change in Consumer income 1.Normal good: I increase-D increase and I decrease- D decrease 2.Inferior good: I increase- D decrease and I decrease- D increase 3.Change in consumers taste: what is hot (tickle me elmo, zhu-zhu pets) 4.Change in consumers expectations: tech innovation 5.Change in substitutes (a good or service which can be used in place of another good or service): Coca-Cola and Pepsi and RC cola 6.Change in complements (an item used with another good): if price of hot dogs increases too much than demand for hot dog buns decreases)
ELASTICITY When you change the price (increase), what percentage does demand change (decrease). -The extent to which a change in price causes a change in the quantity demanded. When there are many substitutes, products are usually more elastic. Products with less substitutes are inelastic (price change has little effect on demand).
CHAPTER 21: SUPPLY Supply: refers to the maximum quantities of a good or service producers are willing to sell at all possible market prices. Supply Schedule: Table that lists the various prices and quantities of a product or service that someone is willing to produce over a range of possible prices.
SUPPLY SCHEDULE Price (per bushel)Quantity supplied (bushels/month) 90115 85100 8085 7570 55 What is the Law of Supply?
LAW OF SUPPLY As prices for a good increase, so will the quantity the producers are willing to supply. If prices fall, the quantity producers are willing to supply will decrease. Profit: the money or resources one receives for their goods and services over and above the costs. - Businesses want to supply enough of a product at a price which will create the greatest profit.
CHANGES IN SUPPLY (SHIFTS) Created by a non-price determinant! 1.Change in the cost of resources- P (decreases), suppliers can supply more at the same price. 2. Change in productivity- More efficient, suppliers can supply more at the same price. 3.Change in technology- changes efficiency 4.Government regulations- increase regulations, suppliers will supply less at the same price. 5.Taxes and subsidies- S increase, Q increase; T increase, Q decrease.
FINDING THE EQUILIBRIUM PRICE PriceQuantity Demanded Quantity Supplied State of the MarketChange in Price 9045115Surplus=70 unitsDecrease Price 8565100Surplus=35 unitsDecrease Price 8085 EPStay 75105 Shortage=35 unitsIncrease Price 7012555Shortage=70 unitsIncrease Price Surplus: the quantity supplied is greater than the quantity demanded (price is too high). Shortage: the amount demanded is greater than the quantity is supplied (price is too low). Equilibrium Price: the price when there is neither a surplus nor a shortage.
PRICE CONTROLS Price Floor: a restriction imposed by the government that prohibits the price from falling below a certain level. Price Ceiling: a restriction imposed by the government that prohibits a price from going above a certain level. Good or bad? Why or why not?
PRICES 1)Neutral: favor neither the producer nor the supplier. 2)Flexible: change to meet societies needs 3)Freedom of choice: price is the result of economic freedom of both suppliers and consumers.