1. Chapter 7: Demand and Supply

2. Barter vs. monetary economy
Barter – goods are traded directly for other goods
Problems:
requires double coincidence of wants
you want what they have, they want what you have
no match = needs not met!
large number of trading ratios
costs more to get information on
goods/services available

3. Barter vs. monetary economy
Monetary economy has lower transaction and information costs
MORE EFFICIENT!
Value based on TRUST
It Really is Just Paper!

4. Markets
In a market economy, the price of a good is determined by the interaction of demand and supply
Seller & Buyer have to agree on a price for an exchange to take place

5. Demand
A relationship between price and quantity demanded in a given time period

6. Demand schedule
What would this demand schedule look like on a graph?

7. Demand curve
Notice the direction of the “curve” – a demand curve will ALWAYS resemble this!

8. Graphing Demand! Qd = 40 – 2p Video Example Schedule Graphing
Create a basic graph.
Label the axis.
3. Graph each point from the demand schedule.
4. Draw the demand curve.
Equation Graphing
Qd = 40 – 2p Video Example
Solve the equation to determine graph values.
Graph the demand curve.

9. Law of demand When price goes up, quantity demanded goes down
When price goes down, quantity demanded goes up

10. Change in quantity demanded vs. change in demand What is the difference?
Change in quantity demanded Change in demand

11. What is the difference? Change in quantity demanded Change in demand
Indicates a change OTHER than price. Such as a substitute, income, or fads that change WHAT is demanded. The ENTIRE demand curve moves to the left.
Indicates HOW much product is demanded at a given price! PRICE it the KEY!

12. Practice Graphing #3 Demand Equation WIDGETS: Qd=60-2p
**For each curve, is the curve elastic or inelastic? What information would be needed to better determine the answer?

13. Market demand curve
Market demand is the horizontal summation of individual consumer demand curves (THE TOTAL OF ALL INDIVIDUALS’ DEMAND CURVES)

14. PRICE ELASTICITY OF DEMAND
HOW responsive are consumers to price change?
Changes in price have a great effect on consumer demand!
SUCH AS: Crab Legs
Changes in price have little effect on consumer demand!
SUCH AS: Sugar

15. Determinants of demand
What determinants are being demonstrated in this comparison?
tastes and preferences
prices of related goods and
services
income
number of consumers
expectations of future prices
and income
THIS IS REFERRING TO THE SHIFT TO
THE LEFT OF THE ENTIRE DEMAND
CURVE – NOT A PRICE EFFECT!
VS.

16. Tastes and preferences
These are not demanded due to change in FAD… among other reasons!!!
Effect of fads:

17. Prices of related goods
substitute goods
complementary goods
– an increase in the price of one results in an increase in the demand for the other.
– an increase in the price of one results in a decrease in the demand for the other
IN FUEL PRICE =
DEMAND
DEMAND

18. Change in the price of a substitute good
Price of coffee rises:

19. Change in the price of a complementary good
Price of DVDs rises:

20. Income and demand: normal goods
A good is a normal good if an increase in income results in an increase in the demand for the good.

21. Income and demand: inferior goods
A good is an inferior good if an increase in income results in a reduction in the demand for the good.

22. Demand and the # of buyers
An increase in the number of buyers results in an increase in demand.

23. Expectations: How does this effect demand?
A higher expected future price will increase current demand.
A lower expected future price will decrease current demand.
A higher expected future income will increase the demand for all normal goods.
A lower expected future income will reduce the demand for all normal goods.

24. International effects
exchange rate – the rate at which one currency is exchanged for another.
currency appreciation – an increase in the value of a currency relative to other currencies.
currency depreciation – a decrease in the value of a currency relative to other currencies.

25. International effects (continued)
Domestic currency appreciation causes domestically produced goods and services to become more expensive in foreign countries.
$ goes up = price of US goods up internationally
An increase in the exchange value of the U.S. dollar results in a reduction in the demand for U.S. goods and services.
DEMAND for US goods goes DOWN
The demand for U.S. goods and services will rise if the U.S. dollar depreciates.
$ worth decreases = INCREASE in DEMAND for US goods

26. 12 19 28 40 55
Graph all 3 demand schedules. Schedules 2 & 3 will be on the same graph. Is one more elastic than the other? Support your answer.
** Complete Section GR and do the 7.2 section assessment on page 185.