Download Demand Supply PPT

The Australian Economy
Questions to consider
1. What is economics?
2. What do we mean by economise?
3.Who is effected by economics?
4. Why is economics important?
1. What is economics?
Economics is a term that is generally used
to refer to how a nation tries to satisfy
people’s needs (such as clean water, food,
shelter and health care) and wants (nonessential goods and services) with limited
resources.
Satisfaction of Individual
Human ‘wants’
Q: How do people satisfy their material
wants?
Satisfaction of collective
Society ‘wants’
Q: How does Society satisfy its needs &
wants?
INSATIABLE WANTS + LIMITED RESOURCES
=
THE NEED TO ECONOMISE
More More More!
Can people’s wants be
satisfied in the long run?
Can we have everything we
want? Why not?
Gmeee,
Gmeee,
Gmeee
2. What do we mean by
Economise
Best case scenario:
Maximise our satisfaction with our limited resources;
i.e. choose how to use our resources to our greatest
advantage
ECONOMISE
Concept of scarcity
How to best use limited resources
(SUPPLY)
VS
How to best satisfy the unlimited wants
of society (DEMAND)
SUPPLY: How to best use
limited resources
Natural resources – Land
Human resources – Labour
Capital resources – Machinery & buildings
Enterprise resources – Management
DEMAND: How to best satisfy
the unlimited wants of society
Households - To Maximise their satisfaction through the
consumption of goods and services
Businesses - To maximize profits. Keeping production
cost low can help to maximise profits
Governments - To lower unemployment, keep prices
stable (i.e. low INFLATION); increase economic growth;
raise living standards; regulate income distribution; keep
Australia economically viable.
Scarcity & choice
Scarcity of resources forces the need for
individuals and society to make choices
DEMAND
INSAIABLE WANTS &
NEEDS
SUPPLY
LIMITED
SUPPLY
RESOURCES
Satisfying Wants & Needs
Choice & Opportunity Cost
Choice Results in opportunity cost
Opportunity cost is the cost of undertaking
one economic activity instead of another
that is the best alternative.
The aim of economising is to minimise
opportunity cost; that is, they put their
resources to the best use possible.
The economic problem?
"Economic problems arise as the individual or the community has
to make the most efficient use of its limited resources and is
confronted with the problem of choice. Economics is accordingly
concerned with the arrangements that are made to most efficiently
use of scarce resources"
3. Who is Effected by Economics?
Economics &You
All people are touched by economic
decisions on multiple occasions every
day.
Economic decisions taken by
individuals, groups, businesses and
governments have effects on the
welfare of nations and regions; today
these effects are increasingly global in
their impact.
Society’s Economic Challenge
A major challenge facing
societies in the twenty-first
century is how to balance
further growth of living
standards and improvement in
the distribution of the world’s
income and wealth, with
protection of the environment
and the maintenance of liberal
democratic government.
DEMAND
INSAIABLE WANTS
& NEEDS
SUPPLY
LIMITED
SUPPLY
RESOURCES
Satisfying Wants & Needs
Taking Responsibility
As a citizen, everyone has to make
decisions on a wide variety of economic
problems of personal, local, state, national
and international significance.
4. Why is Economics Important?
The Need for Economic Understanding!
The extensive media coverage of
economic issues, problems and events
has, in recent years, highlighted the
need for increased community
awareness of the economic environment
in which we live and the economic forces
that act upon our lives.
The Benefits of Economic
Literacy
By studying Economics at school you have
the opportunity to take on this challenge &
manage resource scarcity and address the
requirements for human survival and
economic sustainability.
The study of Economics is a huge asset to
a student’s education as it develops life
long learning skills crucial to their success
in the real world.
Core Economic knowledge
to understand how goods and services are produced and
distributed
to recognize themselves as producers and consumers of
goods and services
to analyse the interaction of economic policy and
economic activity and how decisions on these matters
impact on individuals and broader society
make rational economic choices both in their own lives
and in their participation in policy decisions as citizens of
a city, state, nation, and the world
interpret local, national and global economic events and
their likely impact on the wellbeing of themselves and
others
appreciate the interdependency of individuals and
nations for having needs met and the disparities
between individuals and nations
Advantages
Students who develop their economic
literacy are in a better position to:
act rationally and ethically when making economic and
personal financial decisions
influence others to do likewise
appreciate the complexity of economic decision-making
and to better understand the economic decisions made
by others
manage their personal affairs better
be more effective and productive members of society as
they are capable of making reasonable judgments on
public policy issues that have a bearing on their personal
prospects and those of the nation
Career Pathways
Career pathways for students intending
to pursue a career in this area include:
Economist
Stock market
Statistician
Investment advice
Commerce Teacher
Politics
Banking
Government and
international trade
Small Business Owner
Careers Foundations
Economics provides a foundation for
careers in:
Accounting
Law
Business
Management
Government and politics
Marketing and tourism
Finance and insurance
Public policy
Information technology
Teaching and education
Markets & Economics
• The study of economics involves looking
at the nature of markets.
• Through a market economic view we look
at how:
• goods and services are produced and consumed
• income is earned and spent on a national basis
• It uses price signals (Price Mechanism) to
indicate what products consumers do or
do not want to see produced
Introduction to Markets
• A market does NOT have to be
a physical place like a shop, it can also be a
virtual one, like the money market.
• The market place consists of all those who have
items/services for sale and all those who are
interested in buying those items/services
• Many businesses have global markets because
of the developments in technology
Introduction to Markets
• The range of markets:
– Organised markets – commodities e.g. rubber, oil,
sugar, wheat, gold, copper, etc.
– Financial markets – stocks, shares, currencies,
financial instruments
– Goods markets – the supply and demand
of goods and services in general, food, clothing,
leisure, houses, cars, etc.
– Factor markets – the supply and demand
of factors of production – land, labour
and capital
What is a market?
• A market – is any place or process that
brings together buyers and sellers with
a view to agreeing a price
• The basis of how an economy operates
– through production and subsequent
exchange
• A market is - what our economy uses
to answer the three basic economic
questions
– 1. What to produce?
– 2. How to produce?
– 3. For whom to produce?
The Economic Problem
• 1. What goods and services should an
economy produce? – should the emphasis be
on agriculture, manufacturing or services, should
it be on sport and leisure or housing?
• 2. How should goods and services be
produced? – labour intensive, land intensive,
capital intensive? Efficiency/Management?
• 3. Who should get the goods and services
produced? – even distribution? more for the
rich? for those who work hard?
Production Possibility Frontiers
Capital Goods
Ym
Yo
A
it devotes all
Assume
a country
IfIf
the
country
is
resources
to its
capital
If it reallocates
can
produce
at
point
A ontwo
the
resources
round
goods
it (moving
could
types
of
the
PPF
A to B) it can
PPF
Itfrom
can
produce
agoods
maximum
produce
more
consumer
with
resources
of Ym.its
produce
the
goods
but only
at the
– capital
goods
combination
of
expense
of fewer
If it devotes
allcapital
its Yo
and
consumer
goods.
Thegoods
opportunity
resources
to
capital
and
goods
cost
of
producing
anitextra
consumer goods
Xo– consumer
Xo
X1 consumer goods
could
produce a
is
Yo
–
Y1
capital goods.
goods
maximum of Xm
B
Y1
Xo
X1 Xm Consumer Goods
Production Possibility
Frontiers
Capital Goods
C
Y1
Yo
.
A
It Production
can only produce at
points outside the PPF
inside the PPF
if it finds a way of
– e.g. point
B
expanding
its
resources
improves
means or
the
the
productivity
of
country
is not
those resources it
usinghas.
all This
its will
already
resources
push
the PPF further
outwards.
B
Xo X1
Consumer Goods
Price Mechanism
• Price mechanism is a system where by producer
supply and consumer demand interact in the
marketplace to set the prices for goods and
services
• Consumer demand is the
and
of the buyer to pay the actual asking price for the
good
• Supply is the quantity of that commodity that will
be provided by the buyer at a particular price
Prices
• Prices help consumers decide which of their
wants is the most important and a desire for
profit stimulates efficient resources use by each
supplier and helps to smooth out imbalance over
in oversupply and undersupply
• The price mechanism also plays a role in the
distribution of wealth, through the generation
profits wages for successful suppliers in markets
where there is demand
Controlling The Market Economy
DEMAND
SUPPLY
– the amount
consumers
desire to
purchase at
various
alternative
prices
– the amount
producers are
willing to offer
for sale at
various prices
DEMAND
SUPPLY
– reflects the
degree of
value
consumers
place on items
– price and
satisfaction
gained from
purchase
(utility)
– reflects the
cost of the
resources
used
in production
and the
returns/profits
required
• Market demand – consists of the sum of
all individual demand in the market
• Represented by a demand curve
• At higher prices, consumers generally
willing to purchase less than at lower
prices
• *RULE* Demand curve – negative slope,
downward sloping from left to right
The Law of demand
• The demand curve
slopes downwards
from left to right
indicating a negative
relationship between
demand and price.
As price rises, this
discourages buyers
to buy more whereas
a fall in price would
lead to the quantity
demanded to ______
Factor affecting Demand
Changes in the DEMAND CURVE
• Two (2) types of physical changes:
1.
Movement along the curve is caused by ONLY a:
 change in price of the product
2.
Shift in the curve is caused by a change in any of the factors other
than the price of that particular product such as:






Level of disposable income
Preferences and tastes
Change in the Price of a Complementary product
Change in the Price of a Substitute product
Consumer’s expectations
Size of the market
These factors cause the demand curve to shift either:
– Left (Less demanded at each price) D2
– Right (More demanded at each price) D1
see example on graph
1. Movement along the DEMAND curve
Movement along the DEMAND curve is
caused by a change in the:
• Price of the product itself
The Demand Curve - For Lollipops
PRICE CHANGE IN ACTION
The demand curve
slopes downwards from
left to right (a negative
slope) indicating the
relationship between
price and the quantity
demanded. Demand will
be higher at lower
prices than at higher
prices.
Price ($)
$10
The starting price of
Lollipops was $10
As price falls, demand
rises. P then D
As price rises, demand
falls. When P then D
$5
The price of
Lollipop was then
decreased to $5
Demand
100
At $10 the quantity
demanded is 100
150
Quantity (000s)
At $5 the quantity
demanded is
increased to ???
Exercise task
• Draw the same demand curve for lollipops
as the last slide. Label it as (D)
• Label the two axis.
• The initial price is $10 and the quantity
demanded is 100. Mark this as point (a)
• There is a change in price to $15. Does
the quantity demanded rise or fall?
Approximate the quantity demanded.
2. Shift of the demand curve
Shifts of the demand curve are caused by the
following factors:
•
•
•
•
•
•
Level of disposable income
Preferences and tastes
Change in the Price of a Complementary product
Change in the Price of a Substitute product
Consumer’s expectations
Size of the market
The Demand Curve 2
Changes in any of the factors other than price
causes the demand curve to shift either:
• Left (Less demanded at each price) or
• Right (More demanded at each price)
The Shift Of Demand Curve –
Hamburger
SHIFT OF DEMAND CURVE IN ACTION
Changes in any of
the factors affecting
demand other than
price cause the
entire demand curve
to shift to the left
(less demanded at
each price) or to the
right (more
demanded at each
price).
Price (S)
S10
Action: Substitute
Product ‘pizza’ went
down significantly
in price
D1
Demand
D2
Reaction: More
people buy ‘pizza’
instead of
hamburgers
10
100
Decrease demand
from 100 -10
200
Quantity
Resultant Shift:
Less Demand for
hamburgers which
results in a shift to
the left
Factors of supply
The supply curve
slopes upwards
from left to right
indicating a positive
relationship
between supply
and price. As price
rises, it encourages
producers to offer
more for sale
whereas a fall in
price would lead to
the quantity
supplied to fall.
Changes in the SUPPLY CURVE
•
Two (2) types of physical changes:
1.
Movement along the curve is caused by ONLY by a
 change in price.
For eg. A price rise will see an  in supply because producers will anticipate large
profits. Producers will suddenly want to produce those goods or services.
2.
Shift in the curve is caused by a change in any of the factors that will
change the level of supply such as:





Expectations
Preferences
Income
Price of complementary product
Price of Substitute product
These factors causes the demand curve to shift either:
– Left (Less demanded at each price) D2
– Right (More demanded at each price) D1
see example on graph
1. Movement along the SUPPLY curve
Movement along the SUPPLY curve is
caused by a change in the:
• The price of the product itself- assuming the
cost remain the same the higher, the price, the
greater the profit on each item, meaning that the
producer is willing to supply higher quantities the
higher the price
Movement along the Supply Curve
Price $
Supply
$7
The supply curve
slopes upwards from
left to right indicating
a positive relationship
between supply and
price. As price rises, it
encourages producers
to offer more for sale
whereas a fall in price
would lead to the
quantity supplied to
fall.
$3
200
800
Quantity (000s)
2. Shift of the SUPPLY curve
Shifts of the supply curve are caused by the following factors:
• The price of inputs – the lower the price of inputs the more profit
per unit and so the greater the quantities producers are willing to
supply
• The price of other products – for example if the price of other
products rises and there is a perception of increased profits, then
the producers may switch to supplying more of those products and
less of the original
The Supply Curve
• Changes in any of the factors OTHER than price cause a
shift in the supply curve
• A shift in supply to the left – the amount producers
offer for sale at every price
will be less
• A shift in supply to the right – the amount producers
wish to sell at every price increases
• HINT: Be careful to not confuse supply going ‘up’ and
‘down’ with the direction of the shift!
SHIFT of The Supply Curve
Price $
S1
Supply
S2
Changes in any of the
factors affecting supply
other than price will
cause the entire supply
curve to shift. A shift to
the left results in a
lower supply at each
price; a shift to the
right indicates a greater
supply at each price.
$4
100
400
900
Quantity (000s)
The Market
S
Price ($)
A shift in the demand
In
an attempt
to get
curve
to the left
will rid
ofreduce
surplus
stock,
the
demand to
producers
300 from will
500accept
at a
lower
prices.
Lower
price of £5. Suppliers
prices
turn the
attract
do notinhave
some
consumers
to to
information or time
buy.
Thesupply
process
adjust
continues
untiland
thestill
immediately
surplus
disappears
and
offer 600 for sale at
equilibrium
is once
£5. This results
in a
again
reached.
market surplus (S >
D)
Surplus
$5
$3
D1
300
450
600
D
Quantity Bought and Sold (000s)
The Market
S1
Price ($)
A shift in the supply
curve
to the left
The shortage
in the
would lead
to less
market
would
drive
products
being
up prices as some
available
forare
sale at
consumers
every
price.
prepared to pay
Suppliers
more. Thewould
price will
only be able
to offer
continue
to rise
100
units
for
sale at
until the shortage
a
price
of competed
£5 but
has
been
consumers
away and astill
new
desire
to
purchase
equilibrium position
600.been
This reached.
creates a
has
market shortage. (S
< D)
$8
$5
S
Shortage
D
100
350
600
Quantity Bought and Sold (000s)
Factors of Demand
Test your memory…..
Factors of supply
• Test your memory….. What are the 3
factors that affect supply?