Supply and Demand by dfhdhdhdhjr

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									Supply and Demand

        Goal 8 Notes
     Economic Interdependence
   Everything is linked together in economics. One
    economic decision will affect other parts of the
    economy. Some factors that affect economic
    interdependence are:
   New products
   Consumer income—fixed incomes, layoffs, and pay
    raises
   Inflation—when the price of goods rise faster than your
    income
   Cost of resources—gas, electricity, and water
   Natural disasters—floods, hurricanes, and earthquakes
    Law of Diminishing Returns
   This happens when you want to increase
    productivity, so you keep adding one or more of
    the factors of production to increase your output.
    Your output will increase to a point, but there
    will be a point when if you add another factor,
    that output will start to decrease.
    At this point it is not a benefit to you to keep
    spending money on more factors of production.
Diminished Returns
    Law of Diminishing Marginal
              Utility
    This happens when the product that you
    purchase, even at a bargain price, will give
    you less satisfaction.
    This is because you may become bored,
    and tired or overstocked with that product.
    Example: 39-cent cheeseburgers, buy one
    get two free pizzas, or a low price on toilet
    tissue.
      Basic Observations about
             Consumers
   You can not have it all! Decisions must be made
    that involve an opportunity cost (economic
    decision).
   You are responsible for your decisions. You
    must pay your bills (credit Cards).
   You should have some information about what
    you are buying. The more expensive the product,
    the more research you should do. Methods of
    research include: the internet, consumer reports,
    and advice from friends
 Supply and Demand
                 Demand
 Is the amount that the consumer will buy.

 It is called consumer sovereignty.
Demand Curve
        The Law of Demand
   The Law of Demand states that people
    are willing to buy more of a product if the
    price is lower. Price and demand move in
    opposite directions
   This is also known as the price effect.

   Down with Demand!!!!!!!!!
    Factors That Shape Demand
   The price effect is the most important
    factor.
   The quality and durability of a product.
   Consumer taste or desire. What's in style.
   Types of substitutes
   Availability of the product
   Season
      Normal v Inferior Good
   A normal good- is a product whose
    demand increases with rising incomes.
    Example: Lexus, BMW, or a cruise trip.
   An inferior good- is a product whose
    demand decreases with a rising income,
    (Generic or Wal-Mart goods).
             Substitutions
 Sometimes stores offer generic or off
  brands offer lower prices without
  compromising quality.
 (Wal-Mart Soda). This is a substitution.
 Another example is Fruit Rings
          Substitution effect
    A price increase in one product (Dr.
    Pepper) will cause the demand of a
    substitute product to increase (Dr.
    Thunder).
       Complementary good
   When the demand for one product is
    linked to the demand of another product.
    Examples: VCR and tapes, computers and
    disks, and shoes and socks.
       Elasticity of Demand
   How much a price change affects the
    amount demanded.
           Elastic Demand
   When the amount demanded varies greatly
    with a price change.
   These are wants
          Inelastic Demand
 When a price change does not affect the
  amount demanded.
 These are needs
 Example, medicine
                 Supply
 The amount that producers will offer for
  sale
Supply Curve
         The Law of Supply
 The Law of Supply states that production
  or the supply will increase if prices are
  higher and the producers are making more
  profit (self-interest).

 Supply to the Sky!!!!!!!!!!!!
    Change in Supply (causes)
   The major reason is the cost of production.
   There is a fixed supply; a limited number of the
    product is available. Example: sporting events,
    concerts, and hospital beds.
   There are substitutes or alternative choices
    available.
   New businesses.
   Government policy- Deregulation, allows more
    competition. (Phone companies, airlines,
    Microsoft)
    Supply and the Consumer
   Surplus- is an oversupply. This will usually
    result in lower prices.
   Shortage- is a lack in supply. This will usually
    result in higher prices. However, these high
    prices may not last long because new producers
    will enter the market seeking high profits. If a
    shortage is severe enough, then rationing could
    take place.
    Rationing is selling a product in limited
    quantities.
        Market Clearing Price
   The Market- is anyplace where producers and
    consumers make exchanges. In capitalism, the
    price is usually set in a free market.
   Market Price- is the price that satisfies both
    producers and consumers. It is also called the
    equilibrium price.
   The market price is affected by the balancing
    between supply and demand, shortage V.
    surplus. These cycles usually vary on a regular
    basis.
Market Clearing Price
          Profit and Competition
  Profit- is income after all the expenses have
   been paid

Normal Profit- is the amount of profit needed to break even.
Economic Profit- is profit in excess of the break even point.
                    Operating expenses
    Red- means that a business is operating at a loss.
  Black- means that a business is operating with a profit
              Competition
   Competition- is the rivalry between
    businesses to attract customers. Here are
    some benefits of businesses trying to
    attract customers.
Why Do We Need Competition?
   The efficient use of resources.
   Controls prices
   Better quality and service
   Encourage research and development
   Competition is Adam Smith’s Invisible
    Hand.
       Non-price Competition
   Advertising.
   Catchphrases
   Endorsements
   Exploiting fears
   Sex appeal
   Numerical claims
   Bargain appeal
   Bandwagon
   Product improvement
   Styles and Services
   Location or availability
   The Circular Economic Flow of
         Money and Goods
 This chart explains how money and goods
  are exchanged between consumers
  producers and the growers of crops in the
  factor market.
Circular Flow of Money
         The Business Cycle
 The business cycle is a measure of the
  strength of the economy.
 There are 4 cycles of the business cycle.
 Peak
 Recession
 Depression
 Recovery
                    Peak
 Is the highest phase of the business cycle.
 It is the top of the roller coaster
 A peak is also known as a boom time.
 This period is marked by low interest rates,
  low unemployment rates, and low inflation.
 There is a high consumer confidence and a
  high GDP.
                Recession
 Is when there is a decline in the GDP for 6
  months.
 The economy is starting to shrink.
 Unemployment is rising along with interest
  rates as well as inflation.
 Consumer confidence is falling.
               Depression
 Is the lowest phase on the business cycle.
 It is also known as a trough period.
 There is high unemployment, inflation, and
  interest rates.
 There is no consumer confidence, and the
  GDP is in a steady decline.
 We had a “great depression” in 1929 in the
  US.
               Recovery
 Is a rebound after a recession or a
  depression.
 Interest rates, unemployment rates, and
  inflation are falling.
 Consumer confidence is beginning to climb.
 The GDP is beginning to increase.
Business Cycle
          Economic Indicators
 These are certain parts of the economy that we use
  to determine the health of the nation’s economy.
 The Business Cycle shows this graphically.
 The main indicators are: inflation, unemployment,
  interest rates, GDP, and Consumer confidence.
 The most important id the GDP.
       Gross Domestic Product
 This is the measure of all new finished goods and
  services produced in the US every year.
 Finished- Something you buy that is not an
  ingredient in another product.
 Good- A product that you buy that yo ucan
  physically touch (A cheeseburger).
 Service- Something that is provided for you
  (haircut).

								
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