Chpt 3. Supply and Demand PDF

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These are class notes from in class and utilizing the textbook to take note of important things we spoke about....

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September 2 2021 Professor Malca ECO 1002 Chpt 3. Supply and Demand -

Market Participants : Just about every person and institution on the planet. ~

340 million consumers, about 25 million business firms, and tens of thousands of government agencies participate directly in the U.S. economy. Millions of international buyers and sellers also participate in U.S. markets. - Our goal is to maximize the utility (satisfaction) we get from our available incomes. - Business goal is to maximize profit - The basic goals of utility maximization, profit maximization, and welfare maximization explain most market activity. - Sellers must specialize in a good/service to produce - Our economic interactions with each other are thus necessitated by two constraints 1. Our absolute inability as individuals to produce all the things we need or desire. 2. The limited amount of time, energy, and resources we have for producing those things we could make for ourselves. - These constraints leads us to specialize and interact - The Circular Flow : Contains the consumers, business firms, and Government - Business firms supply goods and services to product markets (point A) and purchase factors of production in factor markets (B).

- Individual consumers supply factors of production such as their own labor (C) and purchase final goods and services (D). - Federal, state, and local governments acquire resources in factor markets (E) and provide services to both consumers and business (F). International participants also take part by supplying imports, purchasing exports (G), and buying and selling factors of production (H).

1. 2. 3. 4. 1. 2. 3. 4. 5. 6. -

Factor Markets : factors of production are exchanged, buy/sell land, capital, and labor Product Markets : Market used to buy/sell Goods and Services The consumer is the final recipient of all goods/services produced Market exist wherever exchanges take place Demand exist only if someone is willing and able to pay for the good Is an expression of a consumers a consumers buying intentions (willingness to pay) not a statement on that actual price Demand Schedule : Indicates quantities of a good a consumer is able and willing to buy at alternative prices The amount we buy of a good depends on its price As a price of a good falls, people purchase more of it Factors of a market Demand Tastes ( Desire for this and other Goods ) Income ( Of the consumer ) Expectations ( For income, prices, tastes ) Number of buyers Substitute goods : Goods that might be purchased instead of the current good/alternatives Complementary goods : Goods that are typically consumed with the good purchased Movement along a demand curve are a response to price changes for that good Shifts of a demand curve occur when one of the factors of a demand changes Market Demand : The combination of all individuals demand curves in a market Market Supply : The total amount that is willing to be supplied in a particular market Factors of a Market Supply Technology ( Better tech leads to easier/cheaper to make good) Taxes and Subsidies Factor Costs ( If stuff that goes into product changes in Price ) Expectations Other Goods Number of Sellers Law of Supply : Larger quantities will be offered for sale at higher prices Changes in Quantity supplied are along the supply curve Changes in supply( Change in a factor ) are shown by shifts in the supply curve Equilibrium : Where the demand and supply curve intersect Price Floor : A Minimum Price of a service Market Surplus : More supply being offered then Demand

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Market Shortage : Excess demand over Supply supplied Whenever a markets Price is set above or below the equilibrium price, either a market surplus or a market shortage will occur - Equilibrium price will change whenever a supply or demand curve shifts - Whenever Supply decreases, Price tends to rise - Price Ceiling : Maximum that a good can be sold for - Have 3 predictable Effects 1. Increase the quantity demanded 2. Decrease the quantity supplied 3. Create a market shortage...