Supply, Demand and Market Equilibrium

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A class report in Economics regarding Supply, Demand and Market Equilibrium

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Supply, Demand and Market Equilibrium

  1. 1. Demand, supply and market equilibrium<br />By darylle mon-alon & janice camua<br />
  2. 2. BASIC-DECISION MAKING UNITS<br />FIRM <br />An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.<br />HOUSEHOLDS<br /> they are the consumers in general<br />
  3. 3. BASIC-DECISION MAKING UNITS<br />ENTREPRENEUR<br /> A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.<br />
  4. 4. THE CIRCULAR FLOW<br />INPUT / FACTOR MARKETS <br /> The markets in which the resources used to produce products are exchanged.<br />(Labor, Land and Capital)<br />OUTPUT / PRODUCTS MARKETS<br /> The markets in which goods and services are exchanged.<br /> (Goods and Services)<br />
  5. 5. THE CIRCULAR FLOW : INPUT MARKET<br />GOODS & SERVICES<br /> is a product that is of value and can be used to satisfy some desire or need.  Tangible item or service that the buyer is unable or unwilling to produce on their own  <br />
  6. 6. THE CIRCULAR FLOW : OUTPUT MARKET<br />LABOR MARKET<br /> The input/factor market in which households supply work for wages to firms that demand labor.<br />LAND MARKET<br />The input/factor market in which households supply land or other real property in exchange for rent.<br />CAPITAL MARKET<br />The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.<br />FACTORS OF PRODUCTION:<br />LABOR MARKET<br />LAND MARKET<br />CAPITAL MARKET<br />
  7. 7. THE CIRCULAR FLOW DIAGRAM<br />
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  20. 20. S<br />D<br />D<br />S<br />
  21. 21. Demand & quantity demand<br />DEMAND<br />refers to a relationship between price and quantity demanded. Demand refers to how much is desired at any possible price. <br />QUANTITY DEMAND<br /> refers to the specific amount that is desired at each given price. As price goes up, quantity demand drops as price gets higher<br />
  22. 22. The law of demand<br />LAW OF DEMAND<br />is the negative relationship between price and quantity demanded: As price rises, quantity demanded decreases; as price falls, quantity demanded increases.<br />DEMAND SCHEDULE<br />A table showing how much of a given product a household would be willing to buy at different prices.<br />DEMAND CURVE<br />A graph illustrating how much of a given product a household would be willing to buy at different prices.<br />
  23. 23. Demand<br />QTY DEMAND<br />PRICE<br />QTY DEMAND<br />PRICE<br />Law of demand:<br />The negative relationship between price and quantity demanded: As price rises, quantity demanded decreases; as price falls, quantity demanded increases.<br />
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  25. 25. Factors affecting demand<br />A household’s decision about what quantity of a particular output, or product, to demand depends on a number of factors, including:<br /><ul><li>The price of the product in question.
  26. 26. The income available to the household.
  27. 27. The prices of other products available to the household.
  28. 28. The household’s tastes and preferences.
  29. 29. The household’s expectations about future income, wealth, and prices.</li></li></ul><li>Demand : determinants<br />Other Determinants of Household Demand:<br />INCOME<br />The sum of all a household’s wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure.<br />WEALTH OR NET WORTH<br />The total value of what a household owns minus what it owes. It is a stock measure.<br />
  30. 30. DEMAND : determinants<br />Other Determinants of Household Demand:<br />NORMAL GOODS<br />Goods for which demand goes up when income is higher and for which demand goes down when income is lower.<br />E.G. Cars<br />INFERIOR GOODS<br />Goods for which demand tends to fall when income rises.<br />E.G. Public Transportation<br />
  31. 31. DEMAND : determinants<br />Other Determinants of Household Demand:<br />SUBSTITUTES<br />Goods that can serve as replacements for one another; when the price of one increases, demand for the other increases. E.G. Orang Juice<br />PERFECT SUBTITUTES<br />Identical products. E.G. Soda<br />COMPLENTS / COMPLEMENTARY GOODS<br />Goods that “go together”; a decrease in the price of one results in an increase in demand for the other and vice versa. E.G. Hotdog and Hotdog Buns<br />
  32. 32. DEMAND : determinants<br />TASTE AND PREFERENCES<br />refers an individual’s attitude towards a set of objects, typically reflected in an explicit decision-making process<br />EXPECTATIONS<br />Your beliefs about future income or prices will affect your current purchasing decisions.<br />
  33. 33. Demand curve<br />Shift of Demand VS Movement along a Demand Curve<br />SHIFT OF A DEMAND CURVE<br />The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions.<br />MOVEMENT ALONG A DEMAND CURVE<br />The change in quantity demanded brought about by a change in price.<br />Change in price of a good or service leads to Change in quantity demanded (movement along the demand curve).<br />Change in income, preferences, or prices of other goods or services leads to Change in demand (shift of the demand curve).<br />
  34. 34. Demand curve<br />This particular diagram features an inward shift to the left, or a shrink <br />in demand. An outward shift would be an increase in demand.<br />
  35. 35. Demand curve<br />Shift of Demand Curve VS<br /> Movement along a Demand Curve<br />When the price of a good changes, we move alongthe demand curve for that good. When any other factor that influences demand changes (income, tastes, and so on), the relationship between price and quantity is different; there is a shift of the demand curve, in this case from D0 to D1. Telephone calls are normal goods. <br />
  36. 36. Demand curve<br />33 of 49<br />
  37. 37. Market demand<br />The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.<br />
  38. 38. Supply and quantity supplied<br />SUPPLY<br />Refers to how much is produced at every price. Relationship bet. Quantity supplied and the price of that good<br />QUANTITY SUPPLIED<br />The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.<br />
  39. 39. SUPPLY: The LAW OF supply<br />LAW OF SUPPLY<br />The positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.<br />SUPPLY CURVE<br />A graph illustrating how much of a product a firm will sell at different prices.<br />SUPPLY SCHEDULE<br />A table showing how much of a product firms will sell at different prices.<br />
  40. 40. supply<br />QTY SUPPLIED<br />PRICE<br />QTY DEMAND<br />PRICE<br />
  41. 41. SUPPLY<br />Example:<br />A producer will supply more when the price of output is higher. The slope of a supply curve is positive. Note that the supply curve is red: Supply is determined by choices made by firms. <br />
  42. 42. SUPPLY : DETERMINANTS<br />COST OF PRODUCTION<br /> depends on a number of factors, including the available technologies and the prices and quantities of the inputs needed by the firm (labor, land, capital, energy, and so on).<br />PRICES OF RELATED PRODUCTS<br />The cost of producing the product, which in turn depends on:<br />■ The price of required inputs (labor, capital, and land).<br />■ The technologies that can be used to produce the product.<br />
  43. 43. SUPPLY curve<br />Shift of Supply VS Movement along a Supply Curve<br />MOVEMENT ALONG A SUPPLY CURVE<br />The change in quantity supplied brought about by a change in price.<br />SHIFT OF A SUPPLY CURVE<br />The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions.<br />
  44. 44. supply<br />As with demand, it is very important to distinguish between movements along supply curves (changes in quantity supplied) and shifts in supply curves (changes in supply):<br />Change in price of a good or service leads to Change in quantity supplied (movement along a supply curve).<br />Change in income, preferences, or prices of other goods or services leads to Change in supply (shift of a supply curve).<br />
  45. 45. SUPPLY<br />Shift of Supply Curve VS<br /> Movement along a Supply Curve<br />When the price of a product changes, we move along the supply curve for that product; the quantity supplied rises or falls.<br />When any other factor affecting supply changes, the supply curve shifts. <br />
  46. 46. Market supply<br />MARKET SUPPLY is the sum of all that is supplied each period by all producers of a single product.<br />
  47. 47. Market equilibrium<br />EQUILIBRIUM<br />The condition that exists when quantity supplied and quantity demanded are equal. <br />
  48. 48. Market equilibrium<br />EXCESS DEMAND OR SHORTAGE<br />Excess demand or shortage is the condition that exists when quantity demanded exceeds quantity supplied at the current price. <br />
  49. 49. Market equilibrium<br />EXCESS SUPPLY OR SURPLUS<br />The condition that exists when quantity supplied exceeds quantity demanded at the current price.<br />
  50. 50. Points to remember<br />A demand curve shows how much of a product a household would buy if it could buy all it wanted at the given price. A supply curve shows how much of a product a firm would supply if it could sell all it wanted at the given price.<br />Quantity demanded and quantity supplied are always per time period—that is, per day, per month, or per year.<br />The demand for a good is determined by price, household income and wealth, prices of other goods and services, tastes and preferences, and expectations.<br />
  51. 51. Points to remember<br />The supply of a good is determined by price, costs of production, and prices of related products. Costs of production are determined by available technologies of production and input prices.<br />Be careful to distinguish between movements along supply and demand curves and shifts of these curves. When the price of a good changes, the quantity of that good demanded or supplied changes—that is, a movement occurs along the curve. When any other factor changes, the curve shifts, or changes position.<br />Market equilibrium exists only when quantity supplied equals quantity demanded at the current price.<br />
  52. 52. Review terms and concepts<br />capital market<br />complements, complementary goods<br />demand curve<br />demand schedule<br />entrepreneur<br />equilibrium<br />excess demand or shortage<br />excess supply or surplus<br />factors of production<br />firm<br />households<br />income<br />inferior goods<br />input or factor markets<br />labor market<br />land market<br />law of demand<br />law of supply<br />market demand<br />market supply<br />movement along a demand curve<br />movement along a supply curve<br />normal goods<br />perfect substitutes<br />product or output markets<br />profit<br />quantity demanded<br />quantity supplied<br />shift of a demand curve<br />shift of a supply curve<br />substitutes<br />supply curve<br />supply schedule<br />wealth or net worth<br />

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