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

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Presentation on theme: "Market Economies at Work: Supply and Demand. Demand $ The Desire for a Good or Service and the Ability to Pay for It."— Presentation transcript:

1 Market Economies at Work: Supply and Demand

2 Demand $ The Desire for a Good or Service and the Ability to Pay for It

3 Law of Demand $ When Prices Fall Consumers Buy More $ When Prices Rise Consumers Buy Less

4 Demand Schedules and Curves

5 The Law of Diminishing Marginal Utility $ The Benefit from each Individual Unit Tends to decline

6 Factors Affecting Demand $ Income $ Market Size $ Consumer Taste $ Consumer Expectations $ Substitutes $ Complements

7 Elasticity of Demand The Responsiveness of Consumers to Changes in Price in a Market

8 What Determines Elasticity $ Substitute Goods/Services $ Proportion of Income $ Necessities vs Luxuries

9 Calculating Elasticity $ Businesses Have to Calculate Elasticity $ Should they put Products on Sale? Will it increase the Number Sold? $ Total Revenue Test: Will Selling More Products at a Lower Price Make you More Money?

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

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

12 Supply Schedules and Curves

13 Cost of Production $ Labor Affects Production: Efficiency and Utilization

14 Costs of Production $ Fixed Costs $ Variable Costs

15 Factors Affecting Supply $ Input Costs $ Labor Productivity $ Technology $ Government Action $ Producer Expectations $ Number of Producers

16 Elasticity of Supply The Responsiveness of Producers to Price Changes

17 Demand, Supply & Prices

18 Shortage vs Surplus Supply > Demand = Surplus Demand > Supply = Shortage Prices Prices

19 Reaching Equilibrium Price 40 Salads $10 each Sells only Salads $4 each 50 requests 25 Salads $6 each Sells 25 Equilibrium Reached

20 Equilibrium Price in Real Life Demand or Supply Equilibrium Price

21 Prices as Signals & Incentives $ Competitive Pricing $ Prices and Producers $ Prices and Consumers $20$13 Rising Prices? Enter Market Falling Prices? Leave Market Low Price? BUY!!! High Price? DONT BUY!!!

22 High Price as Signal to Buy?

23 Intervention in the Price System $ Price Ceilings $ Price Floors

24 Rationing Resources & Products $ World War II (other crises) $ Black Markets Unplanned Results of Rationing, or other government regulation


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