Presentation on theme: "TCO 2 Given a supply schedule, a demand schedule, and a change in one or more determinants of supply and demand, graph the supply and demand curves and."— Presentation transcript:
TCO 2 Given a supply schedule, a demand schedule, and a change in one or more determinants of supply and demand, graph the supply and demand curves and illustrate the resulting change in the equilibrium price and quantity. Define supply and demand and show their relationship graphically. Explain the law of determinants of demand and supply. Differentiate between a change in quantity demanded (a movement along a fixed demand curve) and a change in demand (a movement of the entire demand curve). Explain and illustrate how market equilibrium is reached. Illustrate the movement of the supply and demand curves and the resulting new equilibrium price and quantity. Define price-elasticity of demand and supply. Identify the factors that influence price elasticity of demand. Briefly illustrate the concept of price elasticity of supply
SUPPLY, DEMAND, MARKETS What it is, how it works.
Demand Consumers willingness and ability to buy various quantities of a good or service at each price in a set of possible prices in a given time period.
Law of Demand The quantity demanded of a product is negatively, or inversely, related to its price. This means that consumers will purchase more of a product at lower prices than at higher prices. That is why demand curves always slope downward and to the right.
Determinants of Demand Income Taste and Preferences Expectations Regarding Future Price Price of Related Goods Number of Buyers in the Market
Quantity-Demanded Consumers willingness and ability to buy a quantity of a good or service at a price in a period of time. The determinant of quantity demanded is the price of the good or service itself.
Demand is based on Marginal Utility [additional satisfaction]
How this works #Pric e MUMUE 1$ $ $ Price $50. $25. $
Supply Suppliers willingness and ability to offer for sale various quantities of a good or service at each price in a set of possible prices in a given period of time.
Law of Supply The price and quantity supplied are positively, or directly, related. Producers will supply a larger quantity at higher prices than at lower prices. Thus, the supply curve slopes upward because a higher price is necessary to call for the additional output from suppliers
Determinants of Supply Resource Prices/Production Cost Number of Producers in the Market Technology Market Expectations Subsidies/Taxes
Quantity-Supplied Suppliers willingness and ability to produce a quantity of a good or service at a price in a period of time.
Market Where exchange among buyers and sellers takes place.
A market is Demand Supply $ Q ME $ ME Q
Market Equilibrium Quantity-demanded equals quantity- supplied at this price. Supply DOES NOT equal Demand! Found where the supply curve crosses the demand curve. Markets stay in equilibrium until either Demand or Supply or both change.
Effect of an Increase in Supply on Equilibrium Price An increase in supply will cause the equilibrium price to fall.
Effect of Simultaneous Increase in Demand and Supply on Equilibrium Price Demand and supply increase in equal amounts; quantity increases but price does not change
Price Elasticity How responsive is quantity to changes in price?
Perfectly Elastic Demand Quantity-demanded changes by a larger percent than price changes Many substitutes Large percentage of budget Consumers arent particular Q P D
Perfectly Inelastic Demand Quantity-demanded changes by a smaller percent than price changes Few substitutes Small percentage of budget Customers want only this P Q D
Elasticity & Normal Demand Most demand curves are elastic at higher prices and inelastic at lower price ranges. How does this reflect the workings of marginal utility?
Elastic Supply Quantity-supplied changes by a larger percentage than price changes Cost of production low Resources readily available Slope of supply curve is very flat
Inelastic Supply Quantity-supplied changes by a smaller percent than price changes Cost of production is high Resources are not available Slope of supply curve is very steep
Every now and then various parts of the US experience a gasoline shortage. What does this mean in terms of supply and demand? What impact would the price elasticity of both supply and demand have on a gasoline shortage?
Why does a Billionaire Beanie Baby Bear sell for $1000? Which determinants of demand are working here? Is demand elastic or inelastic? What determinants of supply are working here? Is supply elastic or inelastic?
Spiral cut ham can be purchased for $2.99 a pound at Christmas time. What determinants of demand are working here? What determinants of supply are working here? What do you think the price of spiral cut ham would be in May? Why?