CH. 7: DEMAND AND SUPPLYCH. 7: DEMAND AND SUPPLY

A.A. DEMANDDEMAND

1. “The MARKETPLACE”1. “The MARKETPLACE”

2. DEMAND2. DEMAND

3. MARKET3. MARKET

4. VOLUNTARY EXCHANGE4. VOLUNTARY EXCHANGE

5. LAW OF DEMAND5. LAW OF DEMAND

(P QD )(P QD )

(P QD )(P QD )

DEMAND (CONTINUED)DEMAND (CONTINUED)

6. REAL INCOME EFFECT (INFLATION)6. REAL INCOME EFFECT (INFLATION) a. NORMAL GOODSa. NORMAL GOODS b. INFERIOR GOODSb. INFERIOR GOODS

7. SUBSTITUTION EFFECT 7. SUBSTITUTION EFFECT (SATISFACTION)(SATISFACTION)

B. GRAPHING DEMANDB. GRAPHING DEMAND 1. The GRAPHS1. The GRAPHS 2. CHANGE IN QUANTITY DEMANDED2. CHANGE IN QUANTITY DEMANDED 3. CHANGE IN DEMAND3. CHANGE IN DEMAND 4. DEMAND DETERMINANTS4. DEMAND DETERMINANTS a. populationa. population b. incomeb. income c. taste/preferencesc. taste/preferences d. substitutesd. substitutes e. complementary goodse. complementary goods

DEMAND (CONTINUED)DEMAND (CONTINUED)

C. ELASTICITY OF DEMANDC. ELASTICITY OF DEMAND

1. ELASTICITY-responsiveness 1. ELASTICITY-responsiveness to a percent change in to a percent change in price.price.

2. ELASTIC DEMAND-price has 2. ELASTIC DEMAND-price has influence of demand. (subs influence of demand. (subs and alternatives)and alternatives)

3. INELASTIC DEMAND-price 3. INELASTIC DEMAND-price has little influence (needs).has little influence (needs).

SUPPLYSUPPLY

D. SUPPLYD. SUPPLY

1. LAW OF SUPPLY1. LAW OF SUPPLY

P QS P QS

P QS P QS

2. PROFIT INCENTIVE2. PROFIT INCENTIVE

3. THE GRAPHS3. THE GRAPHS

4. CHANGE IN QUANTITY 4. CHANGE IN QUANTITY SUPPLIEDSUPPLIED

5. CHANGE IN SUPPLY5. CHANGE IN SUPPLY

SUPPLY (CONTINUED)SUPPLY (CONTINUED)

6. SUPPLY DETERMINANTS6. SUPPLY DETERMINANTS

a. price of F.O.P.a. price of F.O.P.

b. # of Firmsb. # of Firms

c. Taxesc. Taxes

d. Technologyd. Technology

e. Mother Naturee. Mother Nature

7. DIMINISHING RETURNS 7. DIMINISHING RETURNS (LAW)(LAW)

EQUILIBRIUMEQUILIBRIUM

E. EQUILIBRIUME. EQUILIBRIUM

1. PRICES AS SIGNALS1. PRICES AS SIGNALS

2. SHORTAGES (QD > QS)2. SHORTAGES (QD > QS)

3. SURPLUS (QS > QD)3. SURPLUS (QS > QD)

4. PRICE CEILING (MAXIMUM 4. PRICE CEILING (MAXIMUM PRICE-HELPS CONSUMER)PRICE-HELPS CONSUMER)

5. PRICE FLOOR (MINIMUM 5. PRICE FLOOR (MINIMUM PRICE-HELPS PRODUCER)PRICE-HELPS PRODUCER)