chapter 7: demand and supply
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Chapter 7: Demand and Supply. Barter vs. monetary economy. Barter – goods are traded directly for other goods Problems: requires double coincidence of wants you want what they have, they want what you have no match = needs not met! large number of trading ratios - PowerPoint PPT PresentationTRANSCRIPT
Chapter 7: Demand and Supply
Barter vs. monetary economyBarter – goods are traded directly for other
goodsProblems:
requires double coincidence of wants you want what they have, they want what you
have no match = needs not met!
large number of trading ratios costs more to get information on
goods/services available
Barter vs. monetary economyMonetary economy has lower transaction
and information costsMORE EFFICIENT!Value based on TRUST
It Really is Just Paper!
MarketsIn a market economy, the price of a good is
determined by the interaction of demand and supply
Seller & Buyer have to agree on a price for an exchange to take place
DemandA relationship
between price and quantity demanded
in a given time period
Demand scheduleWhat would this demand schedule look like on a graph?
Demand curve Notice the direction of the “curve” – a demand curve will ALWAYS resemble this!
Graphing Demand!Schedule Graphing1. Create a basic graph.2. Label the axis.3. Graph each point from the demand schedule.4. Draw the demand curve.Equation Graphing Qd = 40 – 2p Video Example3. Create a basic graph.4. Label the axis.5. Solve the equation to determine graph
values.6. Graph the demand curve.
Law of demandWhen price goes up, quantity demanded goes down
When price goes down, quantity demanded goes up
Change in quantity demanded vs. change in demandWhat is the difference?
Change in quantity demanded Change in demand
What is the difference?Change in quantity demanded Change in demand
Indicates HOW much
product is demanded at a given price! PRICE it the
KEY!
Indicates a change OTHER
than price. Such as a substitute, income, or fads
that change WHAT is
demanded. The ENTIRE demand
curve moves to the left.
Practice Graphing
**For each curve, is the curve elastic or inelastic? What information would be needed to better determine the answer?
#3 Demand EquationWIDGETS: Qd=60-2p
Market demand curveMarket demand is the horizontal summation of
individual consumer demand curves (THE TOTAL OF ALL INDIVIDUALS’ DEMAND CURVES)
PRICE ELASTICITY OF DEMANDHOW responsive are consumers to
price change?Changes in price have a great effect on consumer demand!SUCH AS: Crab Legs
Changes in price have little effect on consumer demand!SUCH AS: Sugar
Determinants of demandtastes and preferencesprices of related goods and
servicesincomenumber of consumersexpectations of future prices
and income
THIS IS REFERRING TO THE SHIFT TO THE LEFT OF THE ENTIRE DEMAND CURVE – NOT A PRICE EFFECT!
VS.
What determinants are being demonstrated in this comparison?
Tastes and preferencesEffect of fads: These are
not demanded due to change in FAD… among other reasons!!!
Prices of related goodssubstitute goods complementary
goods– an increase in the price of one results in an increase in the demand for the other.
– an increase in the price of one results in a decrease in the demand for the other
IN FUEL PRICE
=
DEMAND DEMAND
Change in the price of a substitute goodPrice of coffee rises:
Change in the price of a complementary good
Price of DVDs rises:
Income and demand: normal goods
A good is a normal good if an increase in income results in an increase in the demand for the good.
Income and demand: inferior goods
A good is an inferior good if an increase in income results in a reduction in the demand for the good.
Demand and the # of buyers
An increase in the number of buyers results in an increase in demand.
Expectations: How does this effect demand?
A higher expected future price will increase current demand.
A lower expected future price will decrease current demand.
A higher expected future income will increase the demand for all normal goods.
A lower expected future income will reduce the demand for all normal goods.
International effectsexchange rate – the rate at which one
currency is exchanged for another.currency appreciation – an increase in the
value of a currency relative to other currencies.
currency depreciation – a decrease in the value of a currency relative to other currencies.
International effects (continued)Domestic currency appreciation causes domestically
produced goods and services to become more expensive in foreign countries.$ goes up = price of US goods up internationally
An increase in the exchange value of the U.S. dollar results in a reduction in the demand for U.S. goods and services.DEMAND for US goods goes DOWN
The demand for U.S. goods and services will rise if the U.S. dollar depreciates.$ worth decreases = INCREASE in DEMAND for US goods
12
40
28
19
55
Graph all 3 demand schedules. Schedules 2 & 3 will be on the same graph. Is one more elastic than the other? Support your answer.** Complete Section 7.1-2 GR and do the 7.2 section assessment on page 185.