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An Introduction to U.S. Markets Markets How are prices set? The Law of Demand As the price of goods and services INCREASES, buyers may demand LESS goods and services. As the price of goods and services DECREASES, buyers may demand MORE goods and services. The Law of Supply As the price of goods and services INCREASES, producers may offer MORE goods and services. As the price of goods and services DECREASES, producers may offer LESS goods and services. Price Setting The price is set where demand and supply meet. Equilibrium Price The equilibrium price is the point where quantity supplied meets quantity demanded. This is the point where there is no incentive to move. Price Equilibrium Price Supply = demand Quantity When Demand Rises Shifts demand curve to the right Price rises, and quantity demanded rises S P' D' o P Do Qo Q' When Supply Rises Shifts Supply Curve rightward Price falls, Quantity demanded will rise S S' P' A B o P D Qo Q' What happens to the DEMAND for bubble gum if research proves that each gum ball can increase I.Q.? Answer: Demand increases price for bubble gum rises What happens to the SUPPLY of toothpaste if toothpaste workers go on strike? Answer: Supply of toothpaste falls Price of toothpaste rises What happens to the price of strawberries if a winter freeze damages the crop? Answer: Price of strawberries rises What will happen to the SUPPLY of candy bars if new technology is developed which makes it easier for chocolate to be mixed with caramel? Answer: Supply will increase Price will fall What will happen to the DEMAND for inline roller skates if a new roller park opens in your neighborhood? Answer: Demand for skates increases Price for skates rises What will happen to the PRICE of diamonds if any 8th grader can produce them at school? Answer: Price of diamonds will fall What will happen to the DEMAND for butter if the price of margarine falls? Answer: Demand for butter decreases What will happen to the DEMAND for cereal if the price of milk increases? Answer: Demand will decrease