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Chapters 4 6 Presentation Transcript

  • 1. Chapters 4-6 Supply and Demand
  • 2. What is a market?
    • Market – any place where people come together to buy and sell goods or services
      • Consumers create a demand for products
  • 3. What is demand?
    • Demand – the willingness and ability of buyers to purchase different quantities of a good at different prices during a specific time period
      • Willingness refers to the persons want for the good
      • Ability to purchase refers to having the money to pay for the good
  • 4. The Law Of Demand
    • Law of Demand – as the price (p) of a good increases, the quantity demanded (Qd) decreases. As the price (p) of a good decreases, the quantity demanded (Qd) increases.
  • 5. Demand Curve – a graphic representation of the law of demand Quantity is graphed on the x-axis and price is on the y-axis The demand curve has an inverse slope, sloping downward from left to right
  • 6. Changes in Demand
    • When demand changes, the demand curve shifts
      • Demand increases, curve shifts right
      • Demand decreases, curve shifts left
  • 7. Shifts in the demand curve
  • 8. Factors that cause the demand curve to shift
    • 1. Income – as an individuals income changes, they may buy more or less of a particular good
      • Normal good – as income rises, demand rises and demand falls as income falls
        • Purchasing DVD’s
      • Inferior good – a good for which the demand falls as income rises and rises as income falls
        • Name brand products vs. generic products
      • Neutral good – a good for which the demand remains unchanged as income rises or falls
        • Purchasing gasoline
  • 9. Factors that cause the demand curve to shift
    • 2. Preference – peoples preferences effect how much of a good they buy
      • People begin to demand small gas efficient cars instead of gas guzzling SUV’s. The demand curve for small cars shifts to the right while the SUV demand curve shifts to the left.
  • 10. Factors that cause the demand curve to shift
    • 3. Substitutes – A similar good that can be used to replace another.
      • Example – As the price for a six pack of Coke rises, the demand for a substitute, like Pepsi, increases
  • 11. Factors that cause the demand curve to shift
    • 4. Complementary goods – A good that is consumed jointly with another good.
      • As the price of golf clubs increase, the demand for golf balls falls
  • 12. Factors that cause the demand curve to shift
    • 5. Number of Buyers - The more buyers, the higher the demand
  • 13. Elastic vs. Inelastic Goods
    • Elastic - Wants, consumers don’t need them. There are substitutes available for elastic goods. DVD players would be an elastic good. As price changes, demand changes.
    • Inelastic – Goods that have no substitutes, they are necessities. Gas for cars is an example of an inelastic good. As price changes, demand remains the same.
  • 14. Supply
    • The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.
  • 15. Law of Supply
    • Law of Supply – If the price (p) increases, the quantity supplied (Qs) increases. If the price (p) decreases, the quantity supplied (Qs) decreases.
  • 16. Supply Curve The supply curve has a direct slope, as one variable increase so does the other The supply curve slopes upward from left to right
  • 17. Changes in the supply curve
    • When supply changes the supply curve shifts
      • Supply increases, shifts right
      • Supply decrease, shifts left
  • 18. Shifts in the supply curve
  • 19. Factors that cause the supply curve to shift
    • 1. Resource prices - When resource prices fall, sellers are willing and able to produce more of a good. When resource prices rise, sellers produce less.
  • 20. Factors that cause the supply curve to shift
    • 2. Technology – Advances in technology have allowed suppliers to produce more goods at lower costs, meaning they are willing to produce more.
  • 21. Factors that cause the supply curve to shift
    • 3. Taxes – If suppliers have to pay a tax for each good produced, they will produce less of that good.
  • 22. Factors that cause the supply curve to shift
    • 4. Subsidies – Subsidies have the opposite effect of taxes. A subsidy is a payment made by the government for certain actions. For Example, if the government promises to give farmers $2 for every bushel of corn they produce, the farmers will want to produce more.
  • 23. Factors that cause the supply curve to shift
    • 5. Quotas – Quotas are restrictions on the number of goods that can be produced or imported. Quotas limit supply, therefore shifting the supply curve to the left.
  • 24. Factors that cause the supply curve to shift
    • 6. Number of sellers – The more sellers producing a similar good, the higher the supply.
  • 25. Factors that cause the supply curve to shift
    • 7. Future Price – Sellers who anticipate the price of a good may be higher in the future, may limit supply until the price jump occurs.
  • 26. Factors that cause the supply curve to shift
    • 8. Weather – Bad weather often reduces the supply of many agricultural goods.
  • 27. Supply and Demand Together
    • Equilibrium – The point at which the quantity of a good that consumers are willing and able to buy is equal to the quantity that sellers are willing and able to produce. AKA Equilibrium Price. (Point at which the supply and demand curves intersect)
  • 28. Equilibrium Point / Market Clearing Price
  • 29. Shortage and Surplus
    • Shortage – The condition in which the quantity demanded is more than the quantity supplied. Shortages create high prices
    • Surplus – The condition in which the quantity supplied is greater than the quantity demanded. A surplus drives prices down.
  • 30. Shortage and Surplus Graphically
  • 31. Supply and demand video
    • Link to video