Unit 2 Supply and Demand -Study Guide- Answer, Explain and define the following: 1) Demand 2) Consumer 3) Supply 4) Producer 5) Subsidy 6) Give examples of goods that would have inelastic demand 7) Give examples of goods with elastic demand 8) What is elastic supply? 9) Income effect 10) Substitution effect 11) Marginal cost 12) Operation cost 13) What is a company s total revenue? 14) Fixed cost 15) Variable cost 16) What is market equilibrium? 17) What does the law of demand say about prices? 18) When prices rise, what happens to purchasing power? 19) When the selling price of a good goes up, what is the relationship to the quantity supplied? 20) What is it rationing? 21) What is an example of Price Ceiling and Price Floor? 22) What determines the price and the quantity produced of most goods? What is the difference between Supply and Demand and what are the laws that guide them with price?
America s Free-Enterprise - analyzes the small unit economic behavior of households and firms to understand their decision-making process. -American Free Enterprise- An economy is the way goods and services are Everyone is involved in the economy both by producing goods or services & by consuming them. America s economic success can be attributed to immigrants with different backgrounds & experiences. But the major contributor is America s system of.the Backbone of Free Enterprise is -Features of a Free-Enterprise system- Business operates with involvement. In this economic system, producers are to decide what to and consumers are to whatever they need and want. This selling and buying takes place in the, which is a physical place, but instead refers to the entire of buying and selling that takes place out. -Individuals have a right to:. Enter into {people make their own agreements} Make Voluntary Exchanges{ } based on self-interest. The free enterprise system rewards {Something new or Different}. Engage in - {rivalry between companies}. Competition gives the -Role of Supply and Demand- The principle role of supply and demand is to act like a kind of for this type of economic system. It works by creating between those who wish to by selling goods or services and those who wish to goods and services. Supply and demand are called because they act to make the market function. The {someone who acquires goods and services} creates the. The Free-enterprise system{capitalism or Market Economy} allows consumers the freedom to make their own economic decisions: a) How to of their money. b) Communicate their to producers. The {someone who makes goods or offers services for others} creates the. Producers look to - A force that encourages people and organizations to of living. Producers are motivated by the {Financial gain received by selling something for more than it cost to make it } they expect to gain from the goods or services.
Laws of Demand Demand is the amount of goods & services To measure demand economists create Demand or Demand Schedules. A Demand Curve graph measures the number of goods & at what (QD) Refers to how much of a product a consumer will buy at a particular price. -The Demand Curve Shifts- The Demand Curve is only other than price. When (D) for a product changes for reasons, the (D) curve shifts left or right. If the Demand curve shifts, there is an in (D) at any prices. The (D) curve shifts, Demand. -The Laws of Demand- an in price = a in the Quantity Demanded at that price. a in price = an the quantity demanded at that price. Demand Schedule is a table of prices and how much is demanded at that price - Elasticity of Demand- Elasticity of Demand is how Producers look at elasticity to determine whether to or not. Two Types: 1. Demand the price of a product has effect on demand: a. The product. b. are available. c. The price is a of consumer income. 2. Demand - a change in price can cause a change in demand: a. The b. c. The price is a large part of. -What explains the Laws of Demand?- - the amount of goods & services consumers can buy with their available income. - a change in consumption resulting from a change in consumer income or a product price. a change in price of the product causes a consumer to react by buying a good (must be comparable to the original). -Other influences on Demand- Reasons for changes in (D)emand- of an item: of consumers of related goods of consumers and preferences of consumers -Diminishing Marginal Utility- The more a product is used, to the consumer and (D)emand decreases. Demand is - at some point usefulness or desire for the product decreases.
Law of Supply -Supply- Supply - the amount of goods and services at during a given period. Supply deals with the. Profit is the behind why producers choose to make a product. -The Law of Supply- Producers will supply Producers will supply - Why Law of Supply Happens- Producers want to When consumers are willing to. encourage sellers to produce and offer. will be encouraged the industry & increase overall supply -THE SUPPLY CURVE- Illustrates the supply of a product at all levels at a given period. The (S) curve shifts when supply The (S) curve shifts when supply -Taxes Take Away Profits & Decrease Supply- If business have their decreased, it moves the supply curve to. If business have their taxes, it moves the supply to the left. -THE SUPPLY CURVE- Cookies - Other influences on Supplyreasons for changes in (S)upply: -Taxes -Resource -Technology -Prices of -Subsidies - -Number of Sellers -Expectations of producers
Cost of Production -Elasticity of Supply- 1) - a change in resource prices have effect on the quantity supplied. Elasticity of supply is how producers react to a change in price. Production of the product is flexible and can be adjusted as resource prices change. The product in relatively. The production can be. resources need to be adjusted in production. 2) a change in resource prices has effect on the quantity supplied. It is more difficult to change production or supply when resource prices change. The product. There is in production. Additional resources are. -Productivity- Productivity -.It drives businesses/firms to goods or services. The Product is the. Resources{Factors of Production - land, labor, capital} is the. -Revenue, Cost and Profits- Revenue is the amount of {business income}. Costs of production- the in making the product{ }. Profit (Profit margin) - the revenue earned after all costs of have been paid. -Costs of Production- Fixed costs no matter what the level of production. example:. (these expenses must be paid no matter what) Variable costs these as output levels change. ex: Fixed and Variable costs added together equals = Marginal Costs In economics, the term marginal means just - changes in total cost with the of producing more product.. *(3 cars total cost is $300,000. For 2, it s $200,000. $300,000 $200,000 = $100,000 M.C. -Diminishing Marginal Returns- When in production, whenever you more variable input to a fixed input, producing goods and services will become less and or become costlier. (You could end up producing less with more workers) -Law of Diminishing Returns- 3 stages of production predicted by the Law of Diminishing Returns: : increased input supply equal to increased output. : increased input peaks at a certain level. : too much input lowers the level of output. -Externalities- An Spillover of a good or service, that generates benefits or costs to those not involved. A of a transaction that affects people other than the producer or consumer. Example: factory dumps chemical waste into a river polluted water affects health of people living downstream. Example: neighbor plants new flower garden; the results please you. Negative externality- generate unintended or negative effects Positive externality- produces a to third parties
Economic Equilibrium -PRICES- Price serves an important role in a free market. It moves land, labor and capital into the into the. are how producers and consumers with each other. -Market Equilibrium- The point at which at the same price. At this point the. -Disequilibrium- The market price of a product is not at the same point of the quantity demanded. - Excess demand: creates a - (QD > QS )- - Excess supply: creates a - (QS > QD) - How to change this: a, which may cause Demand to increase &/or Supply to decrease until equilibrium is again reached. -Government Intervention- When markets are in disequilibrium, the in order to by controlling prices through: Price Ceilings and Price Floors -Price ceiling- A government regulation for a good or service. charge above the set price level. A common example is In some cities, in order to for lower income people, landlords cannot charge above a. Market price level and the quantity demanded is greater than the quantity supplied. Market will occur and a Deterioration of product quality. -Price Floor- The for a good or service. Pro = Market price level. Con = will occur because the quantity supplied is greater than the quantity demanded. Suppliers compete for customers by improving quality. -Minimum wage- The most common example is Inflation - prices increase. Unemployment - employers to keep costs low. Affects or workers.
-The Role of Prices- Producers tell customers at what goods & services Consumers let producers know for goods & services when they do or do not purchase -Prices provide INCENTIVES- Incentives: cause people to behave in a certain way. encourage producers to encourage consumers to -Prices allow for CHOICES- Producers: low can allow for adjustments to a variety of products. Consumers: producers offers product variety -Prices encourage EFFICIENCY Producers attempt to of production to keep costs down & increase profit margin Consumers search for to get the most for their money with the. -Prices provide FLEXIBILITY- Price changes allow producers to deal with changes in. Consumers preferences are & we can change our demand. -Rationing- a system by which the government (or other authority) decides how to distribute goods - Rationing is unwise - Rationing is ~ products are not ~ prices do not reflect demand Rationing is ~ costs involved in enforcement Rationing creates ~ illegal The Role of Prices