Unit 4 microeconomics general

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  • 1. Supply and Demand Unit 4: Microeconomics
  • 2. I. Demand
  • 3. A. Description
      • Demand is the desire to own something and the ability to pay for it.
      • Law of demand:
    PRICE As price goes down… DEMAND Quantity demanded goes up. PRICE As price goes up… DEMAND Quantity demanded goes down.
  • 4. B. Changes in Demand
    • Substitution Effect: $ , the demand will be effected by substitutes available.
    • Substitutes are goods used in place of another.
  • 5.
    • 3. Income effect: Income rises, the demand will be effected in two different ways:
      • Normal goods: If wealthier, they will buy more of.
      • Inferior goods: If wealthier, they will buy less of.
  • 6.
    • Consumer expectations: Customers know there is a sale, they will not buy this week.
  • 7. 5. Population: Population changes in age, goods demanded change.
  • 8. 6. Tastes and advertising: Waves of popularity & advertising will impact demand.
  • 9. 7. Related goods: Complements are goods that are bought together.
  • 10. C. Extreme Demand
    • Supply shock is when there is a severe shortage.
  • 11. 2. Government may intervene with rationing
  • 12. a. WWII is an example of high demand, rationing rubber, fuel, nylon, etc.
  • 13. b. 1970’s: Gasoline rationing.
  • 14. II. Supply
  • 15. A. Description
    • Production
    • Law of Supply:
    Prices go up… Supply goes up. Prices goes down… Supply goes down.
  • 16. B. Changes in Supply
    • Rising Costs: Costs of production will cause a decrease in supply.
  • 17. 2. Technology: Efficiency in production will increase production and supply.
  • 18. 3. Subsidy: Government financial assistance for producers.
  • 19. 4. Excise tax: Tax on the production, distribution, sale of product.
  • 20. 5. Regulation: Limits on the production will decrease supply.
  • 21. III. Supply and Demand Together
  • 22. A. Equilibrium Equilibrium Price Surplus Shortage Demand Supply Price Floor : Minimum Wage Price Ceiling: Rent Control
  • 23. B. Elasticity
    • Elasticity of demand: Sensitivity of demand of consumers to price change.
  • 24. 1. Elastic: Items that are highly sensitive to price change.
  • 25. 2. Inelastic: Items that are not sensitive to price.
  • 26. 3. Elasticity of supply: Sensitivity of suppliers to price change.
  • 27. a. Elastic: Suppliers will be able to produce more or less of a product due to changes of prices in the market.
  • 28. b. Inelastic: Suppliers will not be able to produce more or less of a product.
  • 29. C. Companies and Pricing
    • Suppliers must take into account, the bills they have when producing:
  • 30. 1. Fixed Costs : Same monthly.
  • 31. 2. Variable Costs: Varies monthly.
  • 32. 3. Fixed + Variable = Total
  • 33. 4. Adding labor (more workers is not always good):
  • 34. a. At first, each additional worker increases output more. (Increasing Marginal Returns)
  • 35. b. Eventually output will still increase, but more slowly. (Diminishing marginal returns).
  • 36. c. Soon, production will drop with each worker added. (Negative marginal returns).
  • 37. IV. Market Structure
    • A. Organizational Chart
  • 38. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Monopoly Monopolistic Competition Oligopoly
  • 39. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many Monopoly Monopolistic Competition Oligopoly
  • 40. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical Monopoly Monopolistic Competition Oligopoly
  • 41. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start Monopoly Monopolistic Competition Oligopoly
  • 42. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Monopoly Monopolistic Competition Oligopoly
  • 43. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly Monopolistic Competition Oligopoly
  • 44. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Monopolistic Competition Oligopoly
  • 45. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Monopolistic Competition Oligopoly
  • 46. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Monopolistic Competition Oligopoly
  • 47. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control Monopolistic Competition Oligopoly
  • 48. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Oligopoly
  • 49. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Oligopoly
  • 50. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Oligopoly
  • 51. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Oligopoly
  • 52. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Oligopoly
  • 53. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Clothing, Barbers Oligopoly
  • 54. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Clothing, Barbers Oligopoly Few
  • 55. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Clothing, Barbers Oligopoly Few Similar, Sub- stitutes
  • 56. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Clothing, Barbers Oligopoly Few Similar, Sub- stitutes Many, Ex- pensive
  • 57. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Clothing, Barbers Oligopoly Few Similar, Sub- stitutes Many, Ex- pensive Some
  • 58. Business Organization Number of Firms Variety of Goods Barriers to Entry Control Over Prices Example Perfect Competition Many None, Identical None, Easy to start None, Supply & Demand Farms, Stocks Monopoly One Unique Good Difficult To Start &Hold Full Control City Sewage Monopolistic Competition Many Similar, Sub- stitutes Few Some Clothing, Barbers Oligopoly Few Similar, Sub- stitutes Many, Ex- pensive Some Auto, Cereal
  • 59. D. Perfect and Monopolistic Competition
    • Perfect competition is tough market
    • Farmers are example, make little profit
    • Monopolistic competition fare better due unique twist they have on product.
  • 60. E. Monopolies and Oligopoly
    • Monopolies virtually banned by Anti-trust Laws
    • Natural Monopolies still exist
      • Geographic – last gas station for miles
      • Governmental – only cable company allowed in town
      • Technological – patents for new products
    • Oligopoly companies are forbidden from cooperating with each other (collusion)