Transcript Decision Making - Southington Public Schools

Supply and Demand
An open market is when products
are based on supply and demand
The law of supply and demand
affects the price of a product
Supply
The amount of goods that producers
are willing to supply at a certain price
$35
$30
S
$25
$20
$15
$10
10
20
30
40
Number of DVDs
50
60
Demand
The amount of goods that consumers
are willing to buy at a certain price
$35
$30
$25
$20
$15
$10
D
10
20
30
40
Number of DVDs
50
60
Market Price set by
Supply and Demand
Where the two meet is called the equilibrium
price or market price
$35
$30
S
$25
Market Price
$20
$15
$10
D
10
20
30
40
Number of DVDs
50
60
• Real life is not quite like this – not so neat,
either you have an oversupply or
undersupply
• With oversupply sales or prices decreases
to get rid of inventory
– Oversupply – nail salons
• With undersupply prices increase
– Red sox tickets, tickets to concert, flights to
Florida
Market Price set by
Supply and Demand
$3.00
$2.50
S
$2.00
$1.50
$1.00
.50
D
10m
20m
30m
OPEC
40
50
60
• Law of Demand says that as PRICE
declines the demand for a product
increases
– Ex. DVD, Ipods, Iphone
Whether a country is industrialized (high
literacy and standard of living) or a less
developed country (more concerned with
survival) or a developing country
(changing power) countries are
categorized by their level of economic
development. These are influenced by
• Literacy level
– Better education systems provide better
goods & services
– Knowledge is power
– Product have higher quality
• Technology
– Automated production, distribution, and
communication systems create products
quickly
• Agricultural vs. Industrial
– Higher manufacturing provides greater
quantity and higher quality
• Also look at their infrastructure
– A nation’s transportation, communication, and
utility system
• Must be good in order to distribute your product
Economic systems are
affected by decision-making
When countries and nations go
through a process to determine
the economic questions
Opportunity costs
• When making choices very often have to
give up something in return
• Examples: college for money or time
homework for TV or computer
develop electronics industry or
develop agriculture
What Products Do we Export?
• Countries will export products for which
they have a low opportunity cost
Leads us to another principle of international
trade:
Absolute advantage or
comparative advantage
Absolute Advantage
• One country is more efficient in producing
a given product using the same amount of
resources as another country at less cost
• Happens for 2 reasons
– Country has raw materials necessary to
produce goods
– Country has low labor costs
• Known as specialization
Comparative Advantage
• The ability of a country to produce a
product at a lower opportunity cost than
another country
• Known as Law of Comparative Advantage
Example of Comparative
Advantage
Country A
Soybeans
10 million
Corn
50 million
Country B
8 million
25 million
Making Good Decisions?
Measures of Production
• Gross Domestic Product
– Measures the total value of all goods and services
produced with resources within a country’s borders
• Includes items produced with foreign resources
• Gross National Product
– Measures the total value of all goods & services
produced by resources of a country within and
outside a country’s border
– Measured in per capita comparison – value of goods
produced divided by population
• Inflation
– An increase in the average price of goods and
services
• Two basic causes
– Demand pull inflation (when demand exceeds supply)
causes prices to increase
– Cost-push inflation (expenses of a business increase)
companies spending more money to make their products
so turn around and charge customer
• Consumer Price Index
– Bureau of Labor Statistics publishes a report
measuring inflation each month
• Unemployment rate
– Loss of income means no purchasing power
Measure of International Trade
• Balance of trade
– Difference between a country’s exports and
imports
• Trade surplus – exports more than it imports
• Trade deficit – imports more than it exports
Just as businesses keep records of their
cash flow nations keep records of their
trade – therefore special forms and
licenses filled out for trade
• Balance of Payment
– Flow of money going out of a country versus
coming into a country
• Favorable balance of payment
– More money coming in than going out
• Unfavorable balance of payment
– More money going out of the country than coming in