Transcript Chapter_3

Chapter 3
Demand and Supply
Circular Flow Model
 What things flow
from each sector of
the economy?
 From Firms?
 From Households?
Demand
 Willingness/ Ability to buy at a certain
price.
 Law of Demand
 Demand Schedule
 Demand Curve
Demand VS. Q demanded
 Price change for
Good A causes:
 Movement along
demand curve for
good A.
 Does NOT change
Demand
 Change in any of the
5 Determinants of
Demand.
 Demand curve
Determinants of Demand
(Shift in Curve)
 Tastes
 Income
 Income Rise= Demand Rise
 Price of related products
 Substitute goods
 Hot Dogs vs. Hamburgers
 Complementary goods
 Products used with each other
 Cars and Gas (SUV’s)
 Number of Potential Customers
 Future Expectations
The Law of Supply
 Supply
 # of units firm is willing to sell
 Diminishing returns
 Cost of producing additional items increases
 Law of supply
 Higher prices = higher quantity supplied
Changes in Supply
 Costs of Production
 Increased cost = decreased supply
 Changes in the FOP
 Wages increase= supply decrease
 Technology Improvements
 Taxation (corp)
 Regulation
 Labor Laws
 Currency (Import costs)
 Unexpected events
Surplus, Shortages, and
Equilibrium
 Point of Equilibrium
Surpluses (excess supply)
Shortages
(excess demand)
Minimum Wage and
Equilibrium
 Unfortunately, the real minimum wage is
always zero, regardless of the laws, and that is
the wage that many workers receive in the
wake of the creation or escalation of a
government-mandated minimum wage,
because they lose their jobs or fail to find jobs
when they enter the labor force. Making it
illegal to pay less than a given amount does
not make a worker’s productivity worth that
amount—and, if it is not, that worker is unlikely
to be employed.
Elasticity
 Effect of the change in price on Demand
 Price Inelastic
 Price doesn’t affect demand
 Ex. Water
 Steeper Curve
 Price Elastic
 Demand very sensitive to Price
 Flatter Curve
Which of these is most
elastic? Why?
What real world event
could cause this action?
What could cause this?
What real world event
could cause this action?