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Demand and supply

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    Demand and supply Demand and supply Presentation Transcript

    • Demand and Supply by Jean Lee C. Patindol, 2011-12
    • The Economy by Jean Lee C. Patindol, 2011-12 taxes services taxes services Produce goods and services, Receive payments Make payments, Receive goods and services Government Consumers Producers
    • Firms and Households: The Basic Decision-Making Units
      • A firm is an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.
      • An entrepreneur is 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.
      • Households are the consuming units in an economy. They also provide the inputs in an economy.
      by Jean Lee C. Patindol, 2011-12
    • Input Markets and Output Markets: The Circular Flow
      • The circular flow of economic activity shows how firms and households interact in input and output markets.
      by Jean Lee C. Patindol, 2011-12
      • Product or output markets are the markets in which goods and services are exchanged.
      • Input markets are the markets in which resources—labor, capital, and land—used to produce products, are exchanged.
      by Jean Lee C. Patindol, 2011-12
    • Input Markets and Output Markets: The Circular Flow
      • Goods and services flow clockwise. Firms provide goods and services; households supply labor services.
      • Payments (usually money) flow in the opposite direction (counterclockwise) as the flow of labor services, goods, and services.
      by Jean Lee C. Patindol, 2011-12
    • Input Markets
      • Input or factor markets are the markets in which the resources used to produce products are exchanged. They include:
        • The labor market , in which households supply work for wages to firms that demand labor.
        • The capital market , in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
        • The land market , in which households supply land or other real property in exchange for rent.
      • Inputs into the production process are also called factors of production.
      by Jean Lee C. Patindol, 2011-12
    • Product/Output Markets
      • are the markets in which goods and services are exchanged.
        • Demand for outputs/products
        • Supply of outputs/products
      by Jean Lee C. Patindol, 2011-12
    • Demand in Product/Output Markets
      • Factors influencing willingness and ability to buy ( determinants of demand ):
        • Price of the good
        • Non-price determinants :
          • Taste or level of desire for the good by the buyer
          • Income of the buyer
            • Normal Goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower.
            • Inferior Goods are goods for which demand falls when income rises.
          • Prices of related products
            • Substitute products (directly competes with the good in the opinion of the buyer)
            • Complementary products (used along with the good in the opinion of the buyer
          • Future expectations
            • Expected income of the buyer
            • Expected price of the good
          • For the total demand : the number of buyers in the market
      by Jean Lee C. Patindol, 2011-12
      • Quantity demanded (Qd ) – the quantity of a good that consumers are willing and able to buy at a particular price, ceteris paribus (given all other things constant); a particular point in the demand curve or schedule; influenced only by price ; movement along a curve
      • Demand (D) – the relationship between the price of the good and the quantity that consumers are willing and able to purchase in a specified time period, ceteris paribus; the entire demand curve or schedule itself; influenced by non-price factors; shift of the curve
      by Jean Lee C. Patindol, 2011-12
    • Demand Schedule for Super Cola by Jean Lee C. Patindol, 2011-12 Price (in pesos per unit) Qd (in million units) 9 1 8 3 7 5 6 7 5 9 4 11 3 13
    • Price (P), in pesos per unit 0 Quantity demanded (Qd), in million units A B C G Qd Demand (demand curve or schedule) movement Shift in demand A B C G Qd Demand (demand curve or schedule) by Jean Lee C. Patindol, 2011-12
    • The Law of Demand
      • As the price of a good decreases/increases , ceteris paribus, the quantity of that good that consumers are willing and able to buy increases/decreases
      • Price is the independent variable; Qd is the dependent variable
      • There is an inverse relationship between price and quantity demanded.
      by Jean Lee C. Patindol, 2011-12
    • Supply in Product/Output Markets
      • Factors affecting willingness and ability to produce and sell ( supply determinants ):
        • Price of the good
        • Non-price determinants :
          • Changes in number of producers
          • Resource prices (prices of the inputs necessary to produce the good)
          • Technological changes
          • Prices of other goods
            • Substitute
            • Complementary
          • Expectations of future prices
          • Natural bounty/ calamity
          • Government incentives/disincentives:
            • Subsidies (incentives)
            • Taxes (disincentives)
      by Jean Lee C. Patindol, 2011-12
      • Quantity supplied (Qs) – the quantity of a good that producers are willing and able to produce and sell at a particular price, ceteris paribus (given all other things constant); a particular point in the supply curve or schedule; influenced only by price ; movement along a curve
      • Supply (S) – the relationship between the price of the good and the quantity that producers are willing and able to produce and sell in a specified time period, ceteris paribus; the entire supply curve or schedule itself; influenced by non-price factors; shift of the curve
      by Jean Lee C. Patindol, 2011-12
    • Supply Schedule for Super Cola by Jean Lee C. Patindol, 2011-12 Price (in pesos per unit) Qs (in million units) 9 10 8 9 7 8 6 7 5 6 4 5 3 4
    • Price (P), in pesos per unit 0 Quantity supplied (Qs), in million units A G Qs Supply (supply curve or schedule) movement shift by Jean Lee C. Patindol, 2011-12
    • The Law of Supply
      • As the price of a good decreases/increases , ceteris paribus, the quantity of that good that producers are willing and able to sell decreases/increases .
      • Price is the independent variable; Qs is the dependent variable
      • There is a direct relationship between price and quantity supplied.
      by Jean Lee C. Patindol, 2011-12