Transcript Chapter 7 Section 1

Chapter 7 Section 1
Supply and Demand
Problem: You are a
farmer deciding what
crop to grown this year.
• You can grow 10,000 bushels of one of
the following crops. Choose one and
write it down:
• Corn
• Wheat
• Soybeans
• Oats
Calculate how much
you earned
• What will you plant next year? Write it
down.
The Marketplace Terms
• Demand - The amount of a good or service
that consumers are willing to buy at various
possible prices during a specified time
period.
• Supply- the amount of a good or service that
producers are willing to sell at various prices
during a specified time period
• Market - the process of freely exchanging
goods and services between buyers and
sellers
Examples of Markets
• Stores
• Services
• Entertainment
• Internet Shopping
What do all of these have in common?
Give an example of each type of market.
Basis of Market
economy
• Voluntary Exchange - a transaction in
which a buyer and a seller exercise
their economic freedom working out
their own terms of exchange.
The Law of Demand
• Definition - economic rule stating that
the quantity demanded and price move
in opposite directions
• Quantity Demanded - the amount of a
good or service that a consumer is
willing and able to purchase at a
specific price
Law of Demand
As price goes
up…
Quantity
Demanded
goes down
As price goes
down …
Quantity
Demanded
goes up
Effects on Demand
• Real Income effect - economic rule stating
that individuals cannot keep buying the
same quantity of a product of its price
rises while their income stays the same
• Substitution effect - economic rule stating
that if two items satisfy the same need
and the price of one rises, people will buy
more of the other
Diminishing Marginal
Utility
• Marginal utility - an additional amount
of satisfaction
• Law of diminishing marginal utility rule stating that the additional
satisfaction a consumer gets from
purchasing will lessen with each of
additional unit purchased
Diminishing Marginal
Utility
• Think of a time when you “had too much
to eat”. How would that experience be
similar to the law of diminishing
marginal utility?