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Chapter 3 Demand and Supply

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Chapter 3 Demand and Supply Powered By Docstoc
					Chapter 3
Demand and Supply
Circular Flow Model

  What things flow
   from each sector of
   the economy?

  From Firms?
  From Households?
Demand

   Willingness to buy at a certain price.
   Law of Demand
   Demand Schedule
   Demand Curve
 What factors affect demand?
Determinants of Demand
(Shift in Curve)
  Tastes
  Income
    Income Rise= Demand Rise
  Price of related products
    Substitute goods
       Hot Dogs vs. Hamburgers
    Complementary goods
       Products used with each other
          Cars and Gas (SUV’s)
  Number of Potential Customers
The Law of Supply

  Supply
    # of units firm is willing to sell
  Diminishing returns
    Cost of producing additional items increases
  Law of supply
    Higher prices = higher quantity supplied
Changes in Supply

  Costs of Production
    Increased cost = decreased supply
    Changes in the FOP
      Wages increase= supply decrease
Surplus, Shortages, and
Equilibrium
  Point of Equilibrium
Surpluses (excess supply)
Shortages
(excess demand)
Elasticity

  Effect of the change in price on Demand
  Price Inelastic
    Price doesn’t affect demand
    Ex. Water
    Steeper Curve


  Price Elastic
    Demand very sensitive to Price
    Flatter Curve
Which of these is most
elastic? Why?
What real world event
could cause this action?
What could cause this?
What real world event
could cause this action?

				
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