1. SUPPLY AND DEMAND CH 4 SEC 2 CH 5 SEC 1 CH 6 SEC 2

2. Chapter 4 Section 2 The Law of Demand

3. 3 I. Explain the causes of a change in quantity demanded. A. Microeconomics Branch of economics that deals with behavior and decision making by small units such as an individual or business.

4. 4 I. Explain the causes of a change in quantity demanded. B. Demand Combination of desire, ability, and willingness to buy a product. C. Law of Demand The demand for an economic product varies inversely with its price. When prices goes up, demand goes down When prices go down, demand goes up

5. 5 I. Explain the causes of a change in quantity demanded. D. Change in the quantity demanded A change in the quantity of the product purchased in response to a change in price. Move from one point on the demand curve to a new point on the same demand curve. Income Effect and Substitution Effect

6. 6 I. Explain the causes of a change in quantity demanded. D. Change in the quantity demanded Income Effect  Change in quantity demanded because of a change in the consumer’s real income due to a change in price. Substitution Effect  Change in quantity demanded because of a change in the relative price of the product.

7. 7 II. Describe the factors that could cause a change in demand. A. Change in demand Consumers demand different amounts at every price, causing the demand curve to shift to the left or the right Demand increases – shift right Demand decreases – shift left Income, tastes, related products

8. 8 II. Describe the factors that could cause a change in demand. A. Change in demand Consumer Income  If income increases, you buy more  If income decreases, you buy less Consumer Taste  If you prefer something, you buy more  If you dislike something, you buy less

9. 9 II. Describe the factors that could cause a change in demand. A. Change in demand Prices of related products  Substitutes Products that can be used in place of other products – Coke vs. Pepsi  Complements Products that tend to be used together – Coffee and Cream

10. 10 III. Understand diminishing marginal utility. A. Marginal Utility Extra usefulness or satisfaction from acquiring one more unit of a product. B. Diminishing Marginal Utility The more units of a certain economic product a person acquires, the less eager that person is to buy more.

11. Chapter 5 Section 1 The Law of Supply

12. 12 I. Understand the meaning and concept of supply. A. Supply Schedule of quantities offered for sale at all possible prices in a market. B. Law of Supply Economic principle stating that the quantity supplied varies directly with its price Price goes up, supply goes up Price goes down, supply goes down

13. 13 II. Explain difference between supply schedule and curve. C. Supply Schedule Quantity demand on the x axis - Price per unit on the y axis. Points to be plotted. D. Supply Curve Slopes upward and to the right.

14. 14 III. Explain change in quantity supplied. A. Change in the quantity supplied Quantity supplied  Amount that producers bring to the market at any one price. Change in the quantity supplied  Change in amount offered for sale in response to a change in price.  Move from one point on the supply curve to a new point on the same supply curve.

15. 15 IV. Specify the reasons for a change in supply. A. Changes in supply Producers offer different amounts of products for sale at all possible prices in the market. Supply increases – shift right Supply decreases – shift left Number of reasons for shifts

16. 16 IV. Specify the reasons for a change in supply. A. Changes in supply 1) Costs of Inputs – what its takes to make the product 2) Productivity - efficiency increases supply 3) Technology – can be good or bad 4) Number of sellers – competition

17. 17 IV. Specify the reasons for a change in supply. A. Changes in supply 5) Taxes and Subsidies Taxes increase the costs to make the product Subsidies are government payments to an individual or business to encourage or protect a certain type of economic activity.

18. 18 IV. Specify the reasons for a change in supply. A. Changes in supply 6) Expectations – if a supplier thinks prices are going up they will withhold supply. 7) Government regulations – restricts supply.

19. Chapter 6 Section 2 How Prices are Determined

20. 20 I. Understand how prices are determined in competitive markets. A. The Adjustment Process 1) Moves toward market equilibrium  Situation in which prices are relatively stable and the quantity supplied is equal to quantity demanded.

21. 21 I. Understand how prices are determined in competitive markets. A. The Adjustment Process 2) Surplus  Situation in which the quantity supplied is greater than the quantity demanded at a given price.  If there is a surplus, the price is likely to decrease.

22. 22 I. Understand how prices are determined in competitive markets. A. The Adjustment Process 3) Shortage  Situation in which the quantity demanded is greater than the quantity supplied at a given price.  If there is a shortage, the price is likely to increase.

23. 23 I. Understand how prices are determined in competitive markets. A. The Adjustment Process 4) Equilibrium Price  The price that creates neither a shortage nor a surplus.  Intersection of supply and demand curves.  Price where q supplied is = q demanded

24. 24 II. Explain the importance of an economic model. A. Economic Model A set of assumptions that can be used to help analyze behavior and predict outcomes.  1) Listed in a table  2) Illustrated with a graph  3) Stated algebraically