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Chapter 7 Section 1 Supply and Demand Problem: You are a farmer deciding what crop to grown this year. • You can grow 10,000 bushels of one of the following crops. Choose one and write it down: • Corn • Wheat • Soybeans • Oats Calculate how much you earned • What will you plant next year? Write it down. The Marketplace Terms • Demand - The amount of a good or service that consumers are willing to buy at various possible prices during a specified time period. • Supply- the amount of a good or service that producers are willing to sell at various prices during a specified time period • Market - the process of freely exchanging goods and services between buyers and sellers Examples of Markets • Stores • Services • Entertainment • Internet Shopping What do all of these have in common? Give an example of each type of market. Basis of Market economy • Voluntary Exchange - a transaction in which a buyer and a seller exercise their economic freedom working out their own terms of exchange. The Law of Demand • Definition - economic rule stating that the quantity demanded and price move in opposite directions • Quantity Demanded - the amount of a good or service that a consumer is willing and able to purchase at a specific price Law of Demand As price goes up… Quantity Demanded goes down As price goes down … Quantity Demanded goes up Effects on Demand • Real Income effect - economic rule stating that individuals cannot keep buying the same quantity of a product of its price rises while their income stays the same • Substitution effect - economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the other Diminishing Marginal Utility • Marginal utility - an additional amount of satisfaction • Law of diminishing marginal utility rule stating that the additional satisfaction a consumer gets from purchasing will lessen with each of additional unit purchased Diminishing Marginal Utility • Think of a time when you “had too much to eat”. How would that experience be similar to the law of diminishing marginal utility?
