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Unit Three

Unit Three. ECONOMICS. Demand and Supply. PA Standards. 6.2.12E; 6.2.12.G; 6.3.12.D; 6.3.12.E; 6.3.12.F. DEMAND. Amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period. willing and able. QUANTITY DEMANDED .

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Unit Three

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  1. Unit Three ECONOMICS Demand and Supply

  2. PA Standards 6.2.12E; 6.2.12.G; 6.3.12.D; 6.3.12.E; 6.3.12.F

  3. DEMAND Amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period. willing and able

  4. QUANTITY DEMANDED Amount of a good or service that a consumer is willing and able to buy at each particular price during a given time period. each particular price

  5. The Law of Demand An increase in a good’s price causes a decrease in the quantity demanded; a decrease causes an increase.

  6. 1. Income Effect Purchasing power refers to the amount of money people have to spend on goods and services

  7. 1. Income Effect Income Effect refers to the increase or decrease in purchasing power caused by a change in price

  8. 2. Substitution Effect Tendency of consumers to substitute a similar, lower-priced product for another product that is more expensive

  9. Substitute Goods replace a more expensive, or brand-name good

  10. Complementary Goods are commonly used with other goods

  11. 3. Diminishing Marginal Utility Decrease in the utility (usefulness) of a good as more units are consumed (usefulness)

  12. Demand Schedule A list of the quantity of goods that consumers are willing and able to buy at a series of possible prices

  13. Demand Curve A graph which plots the information from a demand schedule; it shows the relationship between price & demand

  14. Determinants of Demand Non-price factors that influence the amount of demand for a good or service

  15. Determinants of Demand Consumer Tastes and Preferences Consumer Expectations

  16. Determinants of Demand Market Size -- decisions by private businesses -- government policy -- new technology

  17. Determinants of Demand Income -- generally, as income rises, so does demand -- income relates to purchasing power

  18. Determinants of Demand Prices of Related Goods -- ?? Substitutes ?? -- ?? Complements ??

  19. Elasticity of Demand The degree to which changes in a good’s price affect the quantity demanded by consumers

  20. Elastic Demand A small change in a good’s price causes a major, opposite change in the quantity demanded.

  21. Elastic Demand Elasticity of demand if… …the product is not a necessity

  22. Elastic Demand Elasticity of demand if… …there are readily available substitutes

  23. Elastic Demand Elasticity of demand if… …the product’s cost represents a large portion of consumers’ incomes

  24. Inelastic Demand A change in a good’s price has little impact on the quantity demanded.

  25. Inelastic Demand Inelasticity of demand if… …the product is a necessity

  26. Inelastic Demand Inelasticity of demand if… …there are few or no readily available substitutes

  27. Inelastic Demand Inelasticity of demand if… …the product’s cost represents a small portion of consumers’ incomes

  28. Elasticity for a product varies depending on the specificity of the market—you can look at the big picture (general market) or the close-up picture (specific market)

  29. The more time that passes following a price change, the more elastic a product’s demand becomes

  30. Measuring Elasticity Total Revenue (total receipts) is the total income that a business receives from selling its products

  31. Total Revenue & Elastic Demand A drop in a company’s total revenue from a price increase indicates elastic demand for a product.

  32. Total Revenue & Inelastic Demand An increase in a company’s total revenue because of a price increase indicates inelastic demand for the product.

  33. To maximize revenue, the seller must determine at what point pricing choice brings the highest revenue

  34. SUPPLY The quantity of goods and services that producers are willing to offer at various possible prices during a given time period.

  35. QUANTITY SUPPLIED The amount of a good or service that a producer is willing to sell at each particular price.

  36. Law of Supply Producers supply more goods and services when they can sell them at higher prices and fewer goods and services when they must sell them at lower prices.

  37. Profit Amount of money remaining after producers have paid costs

  38. Costs of Production Business expenses involved in the manufacture of a product

  39. Profit influences specific and general markets--new manufacturers will enter a profitable market; current manufacturers will increase production

  40. Supply Schedule A list of each quantity of a product that producers are willing to supply at various market prices

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