Transcript Demand, Supply and MCP

5
minutes to review vocabulary
Vocabulary quiz
Correct vocabulary quiz
Finish PowerPoint
Test yourself – timed exam on
supply and demand
Homework : Bring BOOK!
 Jeopardy
for extra credit on
Thursday/Friday
Unit 2
 Law
of demand is an inverse (opposite)
relationship between the quantity demanded
and the price of a product.
 Demand is the quantities of a particular good
or services that customers are willing and able
to buy at a particular time at different prices.
 Price Effect is the inclination (tendency) of
people to buy less of things at higher prices
than they would at a lower price.
 Buying
Power
 Diminishing
personal value
 Diminishing
marginal (minor) utility (service or
value)
 Price
and availability of substitutes
 We
distinguish between changes in quantity
demanded, movements along a single demand
curve caused by price changes, and shifts in the
entire curve caused by a change in a factor other
than price.

A change in quantity demanded can be illustrated
by a movement between points along a stationary
demand curve. Once again, demand is influenced by
price.

A shift in demand can also occur. A shift in demand
refers to an increase (rightward change) or decrease
(leftward change) in the quantity demanded at each
possible price. This shift is influenced by non-price
determinants.

An example of an increase and a decrease in demand are
pictured below.
 Income
Change
 Price/availability
#
of substitutes
of buyers
 Price/availability
 Tastes
of complements
and preference (trends)
 Expectations

Which of the following will not change the
demand for movie tickets
A change in the cost of babysitting services
b.
A change in the price of movie tickets
c. A change in the quality of TV and Cable
programming
d. A change in the income of movie goers
a.
Elasticity refers to how responsive a product is to a
price change.
 Price elasticity exists when the price effect is large.
 Price inelasticity exists when the price effect is
small or inexistent.


TR=PxQ
Total Revenue = Price x Quantity

Text p. 39
 The
costs of producing additional goods and
services are know as marginal costs.
 Marginal costs usually increase as a business
increases production.
 A decision to produces something involves
opportunity costs. Marginal costs are the
opportunity cost of changing production levels.
 Supply
is the various quantities of a product
that producers and sellers are willing and able
to sell as different prices at particular time.
 Sellers want to sell more at higher prices than
at lower prices.
 The Law of Supply is a positive relationship
between price and the quantity supplied.
How is the Law of Demand and the Law of
Supply similar/different?
 Changes
in the marginal cost of production (tech
industry)
 Change
in the number of producers
 Change
in expectations
 Elastic-
responsiveness to price change; the price
effect is large
 Inelastic-
less responsive to price change; the price
effect is relatively small

Market Clearing Price- the price that consumers are willing to
pay and suppliers are willing to sell at

Surplus- how much more of a product sellers want to sell than
buyers want to buy at a given price

Shortage- how much more of a product buyers want to buy at any
given price than sellers want to sell

Rationing- the distribution or allocation of a product

Market clearing price is important because…it helps decide
what to produce, how to produce it, and who should receive it
Five basic that affect demand but which are
assumed constant when a demand curve is
constructed.
 Changes in any one causes a shift of the demand
curve.
 The five demand determinants are:






Income
Preferences
Other prices
Buyers' expectations
Number of buyers.
 The
five basic factors that affect supply, but which
are assumed constant when a supply curve is
constructed. The five supply determinants are





Resource prices
Technology
Other prices
Sellers' expectations
Number of sellers
 Rate
of Productivity: is the ratio of outputs
to inputs in production; it is a measure of the
efficiency of production.

Productivity growth raises living standards because
more real income improves people’s ability to purchase
goods and services - enjoy leisure

Improve their lives – living, education, contribute to other
programs they find of interest/importance
 Quality
of Natural Resources: anything obtained
from the environment to satisfy human needs and
wants

Utility, limited availability, depletion or consumption
 Government
regulation: common examples of
regulation include controls on market
entries, prices, wages, development approvals,
pollution effects, employment for certain
people in certain industries, standards of
production for certain goods, the military
forces and services
 Resource
prices: the prices paid to use the
factors of production (labor, capital, land, and
entrepreneurship) affect production cost and
thus producers' ability to sell goods.
 One of the five supply determinants assumed
constant when a supply curve is constructed,
and that shift the supply curve when they
change. The other four are technology, other
prices, sellers' expectations, and number of
sellers. In general, if sellers face higher
resource prices, then they have less ABILITY
to sell goods.
How
many people are supplying this
product?
 Complement
 Substitute
 Identical
 Pricing
 This
is the notion of how much confidence that
consumers (the public) have in the present and
future performance of the economy.
 Consumer confidence is a key determinant of the
aggregate demand curve and the source of
business-cycle instability.
 A sudden drop in consumer confidence can trigger
a contraction, while overly optimistic consumers
can keep an economy expanding, even though it
shouldn't.
 Consumer confidence is generally measured by
periodic surveys which ask consumers about their
degree of confidence in the economy.
 Price

Butter and margarine
 Price

and availability of a substitute good
and availability of a complimentary good
Bread and butter
 Income

Normal vs. Inferior Goods
 Tastes
and Preferences
 Price Expectations
 Stock of good in consumer hands
 Population
The
Price and Availability of
Resources
Changes in Taxes and Subsidies
Technology
Price Expectation for Sellers
Number of Companies, or Firms, in
the Market
Substitute in Production
Demand
and Supply Exam –
Timed
Correct together in class –
different colored pen!
GOOD LUCK!!!!
Reminder: BRING
TEXTBOOK TO CLASS!!!!