Economics Unit 2 · Market demand can also be shown as a demand schedule or demand curve Objective...

Economics Unit 2The United States Economic System

Demand

Objective 2.01: Illustrate how supply and demand affects prices.

What is Demand?

Demand:The desire, willingness, and ability to buy a good or service

For demand to exist a consumer must

1. want a good or service

2. willing to pay for it

3. Resources available to buy it

Individual demand schedule A table that list the various quantities of a product or service that someone is willing to buy over a range of prices

I Likes Sprees, Sooo...What is My favorite type of candy?

Price Quantity

$5.00 0

$2.00 1

$1.00 2

$0.50 5

$0.10 10

Demand Curve

What is Demand?

Individual Demand curve

A graph that shows the amount of a product that would be bought at all possible prices in the market

The Law of Demand

Quantity demanded and price move in opposite directions

Lower price = more things bought

Individual vs. Market Demand

Market Demand

The total demand of all consumers for their product or service

Market demand can also be shown as a demand schedule or demand curve


What is Demand?

Understanding demand is an important tool to understanding our market

Diminishing Marginal Utility

Utility

The pleasure, usefulness, or satisfaction we get from using the product

Diminishing marginal utility

The principle that our additional satisfaction (marginal utility) tends to go down as more and more units are consumed


Changes in Demand

Demand is constantly moving up and down

As demand goes down people are willing to buy fewer items at all possible prices: curve shifts left

As demand goes up people are willing to buy more of the same item at higher prices: curve shifts right

Changes in the # of consumers

As consumers increase = More demand

As consumers decrease = Less demand

Changes in consumers income

Healthy economy = better pay or better job = more spending

Poor economy =low pay or job loss = less spending


Change in Demand

Market Demand Curve

$1.00

Price

Quantity Demanded

D3

D2

D1Increase in Demand

Decrease in Demand

Changes in Demand

Changes in Consumers’ TastesWhen an item becomes popular, more people buy it (holiday season)

When an item fades in popularity, less people buy it

Changes in consumers’ ExpectationsThe way people think about the future

If a newer bigger and better product is coming out, consumers may wait to buy it instead of what on the shelf now.

Blue Ray vs. HD DVD


Changes in Demand

Prices of Related GoodsChanges in substitutes

Using one product in place of another

The demand for one brand of tire may increase if another has safety issues

Changes in Complements

Products that are used together

I tunes would not be needed without an Ipod


Changes in Demand

Elasticity of Demand

Law of demand states price goes up demand goes down and vice versa

The price of a product does not necessarily mean supply would go down

Each product is affected differently

Demand elasticity: the extent to which a change in price causes a change in the quantity

Elastic Demand

The change in price causes a relatively larger percentage change

If you can wait it usually means elastic


Changes in Demand

Inelastic DemandPrice changes have little effect on demand

Certain product who have no substitutes

Pepper

Electricity

How to Remember the Factors affecting DemandRIBBET minus the extra B = RIBET


Supply

What is Supply?

Supply

The various quantities of a good or service that producers are willing to sell at all possible market supplies

The Law of Supply

The principle that suppliers will normally offer more for sale at higher prices and less at lower prices

The higher the price of a good, the greater the incentive is for a producer to produce more

Supply schedule

A numerical chart that illustrates the law of supply


Time is important to me sooo....How much will I work?

Pay per hourQuantity of labor

supplied per week

$1.00 0

$5.00 1

$10.00 3

$20.00 7

$50.00 20

$75.00 25

$100.00 30

Supply Curve

What is Supply?

Individual Supply CurveA graph showing the amount of a product that would be supplied at all possible prices in the market

Unlike the demand curve the supply curve slopes upward

The Profit Motive Business try and set prices at a price they will make profit

Money is primary goal: Wal-Mart = low prices = you keep coming back to spend more money


What is Supply?

Market SupplyGraphing Market Supply: combining all the supply schedules of businesses, the total is the market supply

An upward slope The market supply curve is the same as the individual slope

The influence of price The most significant influencing factor on a supply curve is price of a product


Changes in supply

Supply can increase or decrease because of other factors just like demand

Changes in the cost of resources Cost of resources go up, it becomes more expensive to produce a product

Supply curve shifts to the left

Cost of resources go down, it becomes cheaper to produce a product

Supply curve shifts to the right


Change in Supply

Market Supply Curve

$50.00

Price

Quantity Supplied

S3

S2

S1

Increase in Supply

Decrease in Supply

Changes in Supply

Productivity

The degree in which resources are being used efficiently

Most news you hear concerns labor

When workers produce products faster, a company’s costs go down: shifts supply curve to the right

When workers produce products slower, a company’s costs go up: shifts supply curve to the left

Technology

the methods or processes used to make goods and services

Can cut a businesses cost


Changes in Supply

Changes in government policies

Govt. passing laws to restrict or help production

Higher minimum wage

New safety features

Air bags

Increased or tighter govt. control cause supply to decrease

Shifts curve to the left

Decreased or loose govt. control cause supply to increase

Shifts curve to the right


Changes in Supply

Changes in Taxes and Subsidies

Taxes are a cost to businesses

Higher taxes mean higher production cost

Supply curve shifts to the ________

Lower taxes mean lower production cost

Supply curve shifts to the ________

Subsidy

A govt. payment to an individual, business, or other group for certain actions

Higher subsidy means supply curve shifts ________

Lower subsidy means supply curve shifts _________


Left

Right

Left

Right

Changes in Supply

Expectations Business demand in the future may increase or decrease production moving the supply curve

Elasticity of Supply

A measure of how the quantity supplied of a good or service changes in response to changes in price

If prices change a great deal and supply follows

The product is supply elastic (candy), if it does not the product is supply inelastic (oil)


Supply and Demand at work

What is a market?Markets bring buyers and sellers together

The forces of Supply and Demand work together in markets to establish prices

Prices form the basis of our economy

To understand how supply and demand work together, we combine the curves


Pug Sweaters for Sale


Surplus

Shortage

Supply

Demand


Surplus: the amount by which the quantity supplied is higher than the quantity demanded

Signals price is to high

Consumers are unwilling to pay the price in large enough numbers to satisfy producers

Shortage: the amount by which the quantity demanded is higher than the quantity supplied

Signals price is to low

Suppliers are unwilling to sell their goods or services in large enough numbers to meet all the demand

Objective 2.02: Predict how prices change when there is either a shortage or surplus


Surplus

Shortage


Market ForcesOne benefit of a Market Economy is that it eliminates surpluses and shortages when it operates without restrictions

Overtime surplus forces price down

Overtime shortage forces price up

Equilibrium/Market Price

At this price there is neither a shortage or surplus (will move as supply or demand moves)



Price ControlsSometimes the govt. fixes the forces of supply and demand because they feel they may be unfair

Price ceiling or Price floor

Prices as SignalsPrices help consumers and businesses make decisions

What, How, and for Whom to produce

Video games are produced as long as people will buy them



Advantages of Prices Consumers look for the best price and producers are searching for the most money (without price it would not run as smooth)

Prices are neutral

Prices favor neither the consumer nor the producer

Price represents a compromise

Prices are flexible

Effects on price makes it fluctuate

Prices offer freedom and choice

Prices are familiar


Business and Labor

Types of Business

Proprietorships Sole proprietorship

A business owned and operated by a single person

Pizza parlors and beauty salons

Advantages

Owner receives full ownership and all profits, also makes quick decisions without consulting anyone

Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations

Types of Business

Disadvantages

The owner is financially responsible for any and all problems

Unlimited liability

Financial capital

Most proprietors use their own capital

Attracting qualified employees

Partnerships: a business owned by two or more people

Structure: draw up legal agreement called articles of partnership

Outlines the in’s and out’s of the business


Types of Business

AdvantagesMultiple owners, raise more money, division of labor

Disadvantages The legal structure is complex

Partner added or removed, means new legal paperwork

Unlimited liability still exist

Corporations: a business recognized by law that has many of the rights and responsibilities of an individual

Own property, pay taxes, and sue or be sued


Types of Business

Need a charter to start

Government document granting permission to organize (name, purpose, address, and other features)

How much stock will be issued (stockholders)

Elect board of directors (acts on the behalf of the stockholders)

Hire managers to run the company

Advantages

The ease of raising financial capital (stock)

Can grow to be large

Board of directors can get good employees

Ownership can easily be transferred

Limited liability

Owners are not responsible for debt



Owners (Stockholders) elect the

Board of Directors who select the

President who hires

Vice President of Sales Vice President of Production

Vice President of Finance

Domestic International Quality Control

Research & Development Payroll

Types of Business

Disadvantages

Expensive and complex to set up

Business owners have very little say

Lots of government regulations

Double taxation

Pay tax on profits and then money distributed to shareholders have to pay income tax

Other Business Organizations

Non profit

Churches, Food Bank, and hospitals

Cooperative

Voluntary association of people formed to carry on some kind of economic activity that serves to benefit its members

Franchise


Organized Labor

Types of UnionsCraft or Trade unions

Workers who perform the same skill

Industrial Union

Workers who may conduct different tasks

How Unions are Organized Local

Members of a union in a factory, company, or geographic area


The American Labor Force

The individual craft or industrial unions that represent local unions nationwide

Send organizers to help set up local unions

Negotiate contracts

Provide lawyers and other staff

Largest unions UAW and USWA

International National unions that also have members in Canada or Mexico



Union Arrangements Closed shops (must belong to union to work)

Union shop (can hire non union workers but must join the union)

Right to Work states (prevents unions from forcing workers to join)

Modified Union shop (can choose to join the union or not)

NegotiationsCollective bargaining

Officials from the union and from the company meet to discuss the terms of the workers’ new contract



Mediation 3rd party helps reach an agreement

Arbitration 3rd party listens to both sides and then decides how to settle the disagreement

Labor-Management Conflict Strike: no one working

Lockout: management keep workers out


The Role of Government

The main goal of the government is to encourage competition

monopoly: exclusive control of a good or service

oligopoly: market condition where a few sellers greatly affect price

Mergers: combine two companiesgovernment checks to make sure a monopoly will not exist

Horizontal vs. Vertical integration


Economics Unit 2 · Market demand can also be shown as a demand schedule or demand curve Objective...

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Transcript of Economics Unit 2 · Market demand can also be shown as a demand schedule or demand curve Objective...