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POWERPOINT NOTE PACKET: DEMAND, SUPPLY, & PRICE CHAPTERS 4, 5, & 6 Chapter 4: What is Demand? Demand - _____________________________________________________________________ _________________________________________________________________________ ____________________ individually and collectively have a great influence on the price of all goods and services. Supply - _______________________________________________________________________ _______________________________________________________________________________ _____________________ - people who want to sell items decide how much to sell and at what price. A _____________ represents actions between buyers and sellers Voluntary Exchange - ___________________________________________________________ _______________________________________________________________________________ Demand Schedule - ______________________________________________________________ _______________________________________________________________________________ *CONSTRUCT A DEMAND SCHEDULE USING THE FOLLOWING INFORMATION: *see page 90 for an example A local movie theatre does an experiment every Monday afternoon to see how many people will come see a movie at different prices. Here is what they found: at $2 per ticket 500 people bought tickets, at $4 per ticket 400 people bought tickets, $6 = 300, $8= 200, $10 = 100. 1 ________ per movie ticket (in dollars) ____________ of movie tickets ______________ $2 500 tickets Use the information from the demand schedule to CONSTRUCT A DEMAND CURVE. Plot the points first, and then connect them. Label the line D1. *Make sure to include: a title, labels for the x and y axis, and numbers that are labeled consistently ____________________ graphs the quantity demanded of a good or service at each possible price. The Law of Demand - __________________________________________________________ ________________________________________________________________________________ 1) As price _________, the quantity consumers demand goes _________ 2) As price _________, quantity demanded goes ________ More will be demanded at LOWER prices and less at HIGHER prices There is an ____________ relationship between price and quantity demanded 2 TOTAL REVENUE= _________________ X ____________________ TR= P x Q At which price will the movie theater make the most money (or maximize their profit)? ________________ Shifts in Demand Draw an INCREASE in Demand Draw a DECREASE in Demand ______________________________________________________ Draw an INCREASE in QUANTITY DEMANDED Draw a DECREASE in QUANTITY DEMANDED What is a change in quantity demanded? (pg. 95) _______________________________________ _______________________________________________________________________________ 3 First Can ____________________is the term used to mean customer satisfaction, or the power a good or service has to satisfy a want. Example: ___________________________ Second Can Third Can Fourth Can Fifth Can Marginal Utility - _______________________________________________________________ _______________________________________________________________________________ Law of Diminishing Utility - ______________________________________________________ SECTION 2: FACTORS AFFECTING DEMAND What are some reasons that people substitute one product for another? What are some reasons that people continue to buy a product despite its price? Income effect _______________________________________________________________________________ _______________________________________________________________________________ Substitution effect - _____________________________________________________________ _______________________________________________________________________________ DETERMINANTS of Demand (Define and give and example for each) pages 96-99 Define “change in demand” using pg. 96 -1. Changes in Consumer Income -- 2. Changes in Consumer Tastes -- 4 3. Changes in the Prices of Substitutes -- * Define substitutes and give examples -- 4. Changes in the Prices of Complements – * Define complements and give examples -- 5. Change in Consumer Expectations -- 6. Changes in Population -- 7. Advertising -- SECTION 3: ELASTICITY OF DEMAND How much consumers respond to a given price is _____________________. _________________________ occurs when the demand for some goods is greatly affected by the price Give two examples of elastic goods? Inelastic Demand - _______________________________________________________________ _______________________________________________________________________________ Give two examples of inelastic goods: 5 Draw Elastic Demand Draw Inelastic Demand Chapter 5: What is Supply? ______________ is the willingness and ability of producers to provide goods to the consumer. _____________________- As prices rise, the quantity supplied generally rises. As prices fall, the quantity supplied falls (Direct Relationship). Shifts in Supply Draw an Increase in Supply Draw a Decrease in Supply 6 Define a “change in quantity supplied” (see pg. 115) -- Change in Quantity Supplied Supply Shifters (Define and give an example for each) – pgs. 116-118 1. Cost of Inputs 2. Productivity 3. Technology 4. Taxes and Subsidies * define subsidy 5. Expectations 6. Government Regulations 7. Number of firms/sellers Section 2: DIMINISHING RETURNS Law of Diminishing Returns (pg. 125) ______________________________________________________ 7 Chapter 6: Prices and Decision Making Price – ________________________________________________________________________ _______________________________________________________________________________ The Advantages of Prices (pgs. 137-138) -- __________________________________________ _______________________________________________________________________________ Allocations Without Prices = Rationing (pg. 139) – ___________________________________ _______________________________________________________________________________ _________________________- market where prices are made illegally and products are sold illegally. How do sellers often time try to convince buyers to agree to the price of a product? Why do higher prices encourage more competitors to enter an industry? o Increase in price and increase in production leads to an increase in profits. o Higher prices encourage more competitors to join the market. o Higher prices turn potential suppliers into actual suppliers, adding to the total output. Equilibrium Price (pg. 144) - ______________________________________________________ _______________________________________________________________________________ Draw Equilibrium and label the equilibrium price 8 Factors Affecting Market Price •Supply factors 1. Supply increases, demand stays the same: Price will __________ 2. Supply decreases, demand stays the same: Price will __________ •Demand factors 1. Demand increases, supply stays the same: Price will __________ 2. Demand decreases, supply stays the same: Price will __________ Surplus (Define/Draw)- Shortage (Define/Draw)- Price Ceilings (Define/Examples)- Price Floors (Define/Examples)- 9