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