economics unit 2 · market demand can also be shown as a demand schedule or demand curve objective...
TRANSCRIPT
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
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 _________
Objective 2.01: Illustrate how supply and demand affects prices.
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)
Objective 2.01: Illustrate how supply and demand affects prices.
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
Objective 2.01: Illustrate how supply and demand affects prices.
Pug Sweaters for Sale
Objective 2.01: Illustrate how supply and demand affects prices.
Surplus
Shortage
Supply
Demand
Supply and Demand at work
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
Objective 2.01: Illustrate how supply and demand affects prices.
Surplus
Shortage
Supply and Demand at work
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)
Objective 2.02: Predict how prices change when there is either a shortage or surplus
Supply and Demand at work
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
Objective 2.02: Predict how prices change when there is either a shortage or surplus
Supply and Demand at work
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
Objective 2.02: Predict how prices change when there is either a shortage or surplus
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
The American Labor Force
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
The American Labor Force
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations
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
Objective 2.04: Identify and describe the roles and functions of various economic institutions and business organizations