Economics Supply and Demand

Economics Supply and DemandChapters 4, 5 & 6DemandThe Law of DemandAs Price Increases, Demand Decreases

As Price Decreases, Demand IncreasesLaw of DemandSubstitution EffectLower Priced AlternativesIncome EffectFeeling rich, Feeling poorDemand Schedule

Demand SchedulesIndividual Demand Schedule

Price of a slice of pizzaQuantity demanded per dayMarket Demand SchedulePrice of a slice of pizzaQuantity demanded per day$.50$1.00$1.50$2.00$2.50$3.00543210$.50$1.00$1.50$2.00$2.50$3.0030025020015010050The Demand CurvePricePQuantity DemandedQCeteris ParibusOutside Factors can Change the Curve

Market Demand Curve3.002.502.001.501.00.500050100150200250300350Slices of pizza per dayPrice per slice (in dollars)

Demand

Shifting DemandAdvertisingConsumer IncomeSuperior Goods Vs Inferior GoodsConsumer ExpectationsConsumer TastesPrice of Related GoodsComplementsSubstitutesElasticity of DemandElastic Demand

Inelastic DemandGraphic Representation

Factors Affecting ElasticityAvailability of SubstitutesTimeVolume PurchasedNecessities Vs LuxuriesNeeds vs. WantsSupplyThe Law of SupplyAs Price Increases, Supply Increases,

As Price Decreases, Supply Decreases11Supply Schedule

$.501,000Price per slice of pizzaSlices supplied per dayMarket Supply Schedule$1.001,500$1.502,000$2.002,500$2.503,000$3.003,500Supply CurvePricePQuantity SuppliedQ

Market Supply CurvePrice (in dollars)Output (slices per day)3.002.502.001.501.00.5000500100015002000250030003500

SupplyElasticity of SupplyElastic Supply

Inelastic SupplyElasticity of Supply and TimeShort RunProducts that take little time to makeEx- MusicLong RunProducts that take long periods of time to makeEx- OrangesLabor and OutputMarginal Product of LaborIncreasing ReturnsDiminishing ReturnsNegative Returns

Marginal Product of LaborLabor (number of workers)Output (beanbags per hour)Marginal product of labor001442106317742365285631373218311Costs of ProductionOutputCostsRevenuesProfitsRevenue - CostCostsFixed CostVariable CostsTotal CostsFixed Cost + Variable CostMarginal CostsRevenuesMarginal RevenueTotal RevenueMarginal Revenue X Output

Costs of Production

Production CostsTotal revenueProfit

Marginal revenueMarginal costTotal costVariable costFixed costOutput (per hour)$36200214001234$024487296$2424242424$8435$3644485156$08121520$36363636365772849356781201441681922424242479121563728499273648633636363698989279216240264288242424241924303736363636910111282106136173118142172209Shutdown DecisionsThe goal of all business is profitMarginal Revenues > Marginal CostsOperating a Failing BusinessFixed Costs do not disappearTotal Revenues > Variable Costs

Changes in SupplyTechnologyScarcity & ShortageThe GovernmentSubsidiesExcise TaxesRegulationFuture ExpectationsGlobalizationEquilibrium

Price per sliceEquilibrium PointFinding EquilibriumPrice of pizzaQuantity demandedQuantity suppliedResultCombined Supply and Demand Schedule$ .50300100$3.50$3.00$2.50$2.00$1.50$1.00$.50Slices of pizza per day

050100150200250300350SupplyDemand$2.00$2.50$3.00150

10050250300350Surplus from excess supply$1.50200200EquilibriumEquilibrium PriceaEquilibrium Quantity

$1.00250150Shortage from excess demand

DisequilibriumDisequilibriumExcess DemandExcess SupplyGovernment InterventionPrice CeilingsEx- Rent ControlPrice FloorsEx- Minimum Wage