1. Unit 1 Entrepreneurship and the Economy
Supply and demand

2. How are prices determined?
In a free market system(capitalism)
By the marketplace
Sellers: Want the price to be the MOST they can CHARGE.
Buyers: Want the price to be the LEAST they can PAY.

3. Economic systems
Pure market system: prices are set in the marketplace based on supply and demand with little government interference.
Command economic systems are run by a strong centralized government that decides how resources will be used and sets prices.
Mixed economies combine the principles of market and command economies. Ex: many prices are set in the marketplace but government laws set restricts to eliminate monopolies, price fixing, ripping off consumers.

4. Demand
Demand refers to the quantity of goods or services consumers are willing and able to buy. Therefore:
When the prices goes UP, demand goes DOWN.
When the price goes DOWN, demand goes UP.
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5. Demand elasticity
The demand for some products and services is more effected by economic conditions such as price than others.
Elastic demand: demand IS effected by price.
Inelastic demand: price is NOT effected by demand. This is more likely when there is no substitute available and means you can charge more without affecting demand.
The law of DIMINISHING MARGINAL UTILITY says that price alone does not determine demand; other factors (income, taste, etc.) also play a role.
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6. Supply
Supply refers to the quantity of goods or services producers are willing and able to provide to the marketplace. Therefore:
When the prices goes UP, supply goes UP.
When the price goes DOWN, supply goes DOWN.
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7. equilibrium
Equilibrium is the price point where the demand meets supply, and consumers will buy all of a product supplied by producers.
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8. scarcity
Scarcity occurs when demand exceeds supply. This plays a large role in setting prices for some goods and services.
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9. Questions What might be considered scarce in today’s marketplace?
Think about it: At what price would you demand a cell phone?
$50?
$100?
$150?
$200?

10. DEMAND SCHEDULE Price $50.00 $100.00 $150.00 $200.00 Quantity Demanded
From econedlink.org

11. Law of demand Let’s take a look at the Netflix Controversy.
What happened to the quantity demanded of Netflix products when the company raised its prices by up to 60 percent?
How does this illustrate the law of demand?
According to the video, what happened to the quantity demanded of Netflix products when the company raised its prices by up to 60 percent? [Quantity demanded decreased by one million subscribers.]
b. How does this illustrate the law of demand? [A higher price reduced the quantity demanded.]
From econedlink.org

12. Law of demand Rising food prices sour Utah families:
When the price of beef increased, a consumer responded by substituting pork because it was relatively less expensive. Assuming that beef and pork are substitutes, what does this say about the relationship between the demand for a good (like pork) and the price of a substitute (such as beef)?
Rising food prices sour Utah families:
 a. [Demand for a good (like pork) increases when the price of a substitute (like beef) increases.]
From econedlink.org

13. Law of demand
Consider that beef hamburgers and hamburger buns are complements, or goods that go together. If the demand for beef decreases, what will happen to the demand for hamburger buns?
The video mentioned the price of ice cream. Suppose that this price is expected to increase in the future. What will happen to the demand for ice cream in the present?
            b. [Demand for a good (like hamburger buns) will decrease when the price of its complement (like hamburgers) increases.]
            c. [Demand for ice-cream will increase in the present, because people would rather pay lower prices in the present than higher prices in the future for the same product.]
From econedlink.org

14. Law of demand The Income Effect
Based on the lesson from the video, would frozen vegetables be considered a normal or inferior good? Why?
The video reported that laptops are normal goods. Are other electronics, like music players, cell phones, and televisions also normal goods? Why?
          a. [Frozen vegetables are inferior goods. As income increases, the demand for frozen vegetables decreases. In the video, an increase in income caused consumers to buy fewer of the least expensive cars. Instead, consumers chose to buy more expensive cars, because they could now afford them. Likewise, consumers would buy fewer frozen vegetables. Instead, they would buy more expensive fresh vegetables, because they can now afford them.]
            b. [Music players, cell phones, and televisions are normal goods. There is a positive relationship between their demands and income. As income increases, the demand for these goods increase. As income decreases, the demand for these goods also decrease.]
From econedlink.org

15. Law of demand The Income Effect Demand curve shifting:
Shifting the demand curve to the right shows an increase in demand; the quantity demanded is higher at each price level. In the video, an increase in income caused the demand curve to shift to the right for normal goods.
Shifting the demand curve to the left shows a decrease in demand.; the quantity demanded is lower at each price level. In the video, an increase in income caused the demand curve to shift to the left for inferior goods.
Consider how future expectations of income affect demand. For example, if you expect your income to increase in the future, how will this affect your demand for most goods and services in the present?
  c. Explain shifts of the demand curve as demonstrated in the video.  
          d. [Consumer demand in the present will increase with future expectations of higher incomes. Consumers now view themselves as possessing more wealth, because they expect to earn more income.] If students expect their future incomes to decrease, how will this affect their demand for most goods and services in the present? [Consumer demand in the present will decrease with future expectations of lower incomes. Consumers will decrease current spending to save more money for the future when they have less income.]
From econedlink.org

16. question
Do you think your own income would affect your decision to purchase the cheap T-shirts versus the more expensive ones?