Supply and Demand

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					Supply and Demand
“How Free enterprise
       works”
Free Market vs. Command
       Economy
              Free Market
   A free enterprise
    economy allows
    anyone to start a
    business (legally).
    Also known as
    capitalism
          Free Market

Free market is more efficient
than a command economy. In a
free market, millions of
entrepreneurs and consumers
make millions of economic
decisions every day.


The result of these decisions is
efficiency. ( how desired results
are obtained with limited
resources in an uncertain world.)
          Mixed Economy
• Most world
  economies are a mix.
  Governments have
  some economic
  control
• For example, the
  gov’t controls the
  Post Office in the US
Command Economy
          In this economic
           system, the
           government sets
           prices and tells people
           where they can work
           and how much they
           can earn.
                Ownership
   Ownership is powerful
   You can open any
    business you create
   You can keep all the
    profits
   It is your choice
   You can sell “shares”
   You can donate
       Price Communicates
           Information
   An economy is “efficient” when consumer
    needs are met with very little waste of
    resources or labor. Entrepreneurs who
    succeed at this are rewarded by profit.
                        Price
 In a free market, changes in price send signals to
  entrepreneurs.
 Price relays information b/w the consumer and the
  entrepreneur
                     Price
 A rise in price will
  attract producers and
  lead to increased
  production
 If people stop buying,
  price is probably too
  high
 If it sells out quickly
  and consumers want
  more, price may be too
  low.
         Laws of Supply and
              Demand
    generally determine the price of a product

   Supply (S): quantities        Demand (D):quantities
    available to consumers at      that consumers would be
    various prices                 willing to buy at various
   If everything else remains     prices.
    the same, businesses will     If everything else remains
    supply more at higher          the same, people will
    prices than at lower ones      demand more at lower
   As P increases, quantity S     prices than higher ones
    increases                     As P increases, quantity of
                                   D decreases
Supply graph example
Demand graph example
 time out: let’s look at
some examples from the
       handouts!
       Market behavior
 What happens to the price of air
  conditioners in the summer? fall?
 When are bathing suits most expensive?
  Why?
         Equilibrium
Also known as Market Clearing Price.
Occurs where the D and S curves meet
Competition
       Keeps prices down
        and quality high
       The consumer benefits
        from competition.
        How?
       The opposite is called
        a monopoly
             Summary
 Overall, use Supply and Demand as guides
 If demand decreases, the market may be
  telling you to change your product or
  lower price
 If supply increases, prices may fall

				
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posted:10/2/2012
language:English
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