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Market forces

Market forces. Supply and Demand. Demand. When a person is willing to buy something at a given price. Must be willing and able to buy it. How much would you pay for a slice of pizza? What happens to your demand if the price is low (say 50 cents)? What if the price is $10 per slice? .

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Market forces

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  1. Market forces Supply and Demand

  2. Demand • When a person is willing to buy something at a given price. Must be willing and able to buy it. • How much would you pay for a slice of pizza? • What happens to your demand if the price is low (say 50 cents)? • What if the price is $10 per slice?

  3. Law of Demand • When price goes down, demand goes up • When price goes up, demand goes down • Prices affect demand, demand affects prices, but we also have to consider the supply side (the sellers/producers of a good/service)

  4. What else affects demand? (besides price changes) • Change in the weather • Change in population of an area • Change in a person’s income • Change in consumers’ tastes • Change in price of a substitute good • Change in expectations of future price or availability

  5. Supply For supply, you must think like a producer or a seller, not like a consumer! How much a producer of a good/service is willing to produce/sell at a given price How do they decide how much to charge for their good/service?

  6. Supply-side thinking Think like a producer (seller), not like a consumer(buyer)

  7. Why do producers produce goods and services? Profit motive!

  8. How much to produce? How much to charge? Not too much, not too little Too much = lost profit. Not enough = lost profit.

  9. What will change the quantity supplied?or Why will producers start making more or less stuff to sell? • Because they think they can make more money. This can be called their self-interest. • Does it ever make sense to make less of a good to make more money? • Yes… so you’re not over-producing. Also, you can shift production to something more profitable

  10. Price effects Price they can get - Costs(costs of production, input costs) Profit $$$ • Producers can make more money if the market price goes up. • More profit means producers make more to sell, and new producers enter the market to get some of the profits. Supply

  11. Law of Supply • When price/profit goes up, supply goes up. Why? • When price/profit goes down, supply goes down. Why?

  12. What else affects supply?(besides price changes) • More producers enter the market (why?) • Change in input costs (caused by what?) • Change in expectations of future profit • Discovery of a new source of inputs • Natural disaster, war disrupts inputs

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