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Chapter 2 Demand and Supply

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Chapter 2 Demand and ... price remains constant regardless of Qd ... additional unit falls MU/P1 = MU/P2 Elasticity Chapter 2 Demand and Supply GR ... – PowerPoint PPT presentation

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Title: Chapter 2 Demand and Supply


1
Chapter 2Demand and Supply
  • GR. 12 ECONOMICS (CIA4U1)
  • M. NICHOLSON

2
Markets and Circular Flows
  • Households / Consumers
  • Businesses
  • Factor / Resource Market
  • Product Market

3
The Role of Demand
  • What is Demand?
  • Demand the relationship between the various
    possible prices of a product and the quantities
    of that product consumers are willing to purchase
  • Quantity demanded the amount of a product
    consumers are willing to purchase at each price

4
The Role of Demand
  • Law of Demand
  • Law of demand states that there is an inverse
    relationship between a products quantity
    demanded and it price
  • Demand schedule a table that shows possible
    combinations of prices and quantities demanded of
    a product
  • Demand curve a graph that expresses possible
    combinations of prices and quantities demanded of
    a product
  • Change in quantity demanded the effect of a
    price change on quantity demanded

5
The Role of Demand
  • Change in Demand
  • Market Demand the sum of all consumers quantity
    demanded for product at each price
  • Demand determinants factors that can cause an
    increase or decrease in a products demand
  • Increase in demand an increase in the quantity
    demanded of a product at all prices
  • Decrease in demand a decrease in the quantity
    demanded of a product at all prices

6
Demand Determinants
  • Consumers taste
  • Personal income
  • Normal goods products whose demand changes
    directly with income
  • Inferior goods products whose demand changes
    inversely with income
  • Change in price of other products
  • Substitute goods products that can be consumed
    in place of one another
  • Complementary goods products that are consumed
    together
  • Consumers expectation concerning price
  • Population increase/decrease

7
Price Elasticity of Demand
  • Price elasticity of demand the responsiveness of
    a products quantity demanded to a change in its
    price
  • Elastic demand demand for which a of change in
    a products price causes a larger change in Qd
  • Inelastic demand demand for which of change in
    a products price causes a smaller change in Qd
  • Perfectly elastic demand demand for which a
    products price remains constant regardless of Qd
  • Perfectly inelastic demand demand for which a
    products Qd remains constant regardless of price

8
Factors that affect price elasticity of demand
  • Portion of consumer incomes
  • Access to substitutes
  • Necessities vs luxuries

9
Price Elasticity of Demand Supply
  • Supply the relationship between the various
    possible prices of a product and the
    quantities of the product that businesses are
    willing to supply
  • Quantity supplied the amount of a product
    businesses are willing to supply at each price
  • Market supply the sum of the producers
    quantities supplied at each price

10
The Law of Supply
  • Law of supply states that there is a direct
    relationship between a products quantity
    supplies and its price
  • Supply schedule a table that shows possible
    combinations of prices and quantities supplied of
    a product
  • Supply curve a graph that expresses possible
    combinations of prices and Qs
  • Change in quantity supplied the effect of a
    price change on Qs
  • Supply determinants factors that can cause an
    increase or decrease a products supply
  • Increase in supply an increase in the Qs of a
    product at all prices
  • Decrease in supply a decrease in the Qs of a
    product at all prices

11
Supply Determinants
  • Change in cost of production
  • Increased productivity
  • Government subsides
  • Taxes
  • Change in of producers in market
  • Climatic conditions

12
Price Elasticity of Supply
  • Price elasticity of supply the responsiveness of
    a products quantity supplied to a change in
    price
  • Elastic supply supply for which a change in a
    products price causes a larger change in Qs
  • Inelastic supply supply for which a change in
    a products price causes a smaller change in Qs

13
Factors that Affect Supply Elasticity
  • Immediate run the production period during which
    none of the resources required to make a product
    can be varied
  • Perfectly inelastic supply supply for which a
    products Qs remains constant regardless of price
  • Short run the production period during which at
    least one of the resources required to make a
    product cannot be varied
  • Long run the production period during which all
    resource required to make a product can be
    varied, and businesses may either enter or leave
    the industry
  • Constant-cost industry an industry that is not a
    major user of any single resource
  • Increasing-cost industry an industry that is a
    major user of at least one resource
  • Perfectly elastic supply supply for which a
    products price remains constant regardless of Qs

14
Marginal Utility
  • William Stanley Jevons developed the law of
    diminishing marginal utility
  • As a consumer purchases more units of a
    particular product in a give time period, that
    consumers extra satisfaction from each
    additional unit falls
  • MU/P1 MU/P2

15
Elasticity
Elastic Inelastic Unitary
Demand / Supply 1lt gt1 1
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