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Chapters 4 & 5:Supply and Demand,[object Object]
4-1: What is Demand?,[object Object],Microeconomics is the part of economic theory that deals with the behavior and decision making by individual units, such as people and firms.,[object Object],Microeconomic concepts help explain how prices are determined.,[object Object],Demand is the desire, ability, and willingness to buy a product. ,[object Object],Demand is a concept specifying the different quantities of an item that will be bought at different prices.,[object Object]
[object Object],There is an inverse relationship between the price of an item and the quantity demanded.,[object Object],As price goes up, the quantity demanded will go down.,[object Object],As price goes down, the quantity demanded will go up.,[object Object],Video,[object Object],[object Object]
Diminishing Marginal Utility states that the extra satisfaction we get from using additional quantities of the product begins to decline. “How many cars do you really need?”,[object Object]
Demand Schedule – table that lists how much of a product consumers will buy at all possible prices,[object Object],Demand Curve – a graph showing the quantity demanded at each and every price that might prevail in the market,[object Object],(graphs in motion),[object Object],Individual vs. Market Demand Curves,[object Object]
4-2: Factors Affecting Demand,[object Object],When it comes to demand, there are two types of changes.,[object Object],When the price of a product changes while all other factors remain the same, there will be a change in the quantity demanded.  ,[object Object],We move along the existing demand curve. Demand curve does not shift.,[object Object],Price of hamburger decreases at McDonalds, people will buy more hamburgers.,[object Object],Sometimes other factors change while the price remains the same.  Then there will be a change, or shift, in total demand.,[object Object],If McDonalds redesigns its restaurants to appeal to more people, they will have more customers, even at the same price.,[object Object],video,[object Object]
Change in Quantity Demanded,[object Object],Change in Demand,[object Object],Caused by a change in price,[object Object],Graphically represented by a move along the demand curve,[object Object],Income effect – the change in quantity demanded due to the change in a buyers real income,[object Object],Price goes down, you spend less, you “feel” richer, you buy more.,[object Object],Substitution effect – the change in quantity demanded due to a price change that makes other products more or less costly,[object Object],Caused by a change in factors other than price,[object Object],Consumers decide to buy different amounts of the product at the same prices,[object Object],Graphically represented by a shift of the demand curve, giving an entirely new demand curve  (graphs in motion),[object Object],Can be caused by changes in:,[object Object],consumer income,[object Object],consumer tastes (trends),[object Object],cost of substitutes,[object Object],cost of complements,[object Object],consumer expectations,[object Object],number of consumers,[object Object]
4-3: Elasticity of Demand,[object Object],Elasticity is a measure of responsiveness.,[object Object],“cause and effect”,[object Object],how much does a dependent variable respond to a change in the independent variable,[object Object],How much does the quantity demanded respond to an increase or decrease in price? Depends on its elasticity.,[object Object],Demand is elastic when a change in price results in a relatively larger change in quantity demanded. (m<-1),[object Object],Demand is inelastic when a change in price results in a relatively smaller change in quantity demanded. (m>-1),[object Object],A product is unit elastic when a change in price results in a proportional change in quantity demanded. (m=-1),[object Object]
Chapters 4 & 5
Chapters 4 & 5
3,000 pounds of product A sells for $2.40/pound.  If the price drops by 1/6, the amount sold will increase by 25%.,[object Object],New price = 2.40 * (5/6) = 2.00         New quantity = 3000 * 1.25 = 3750,[object Object],Old: 3000 * 2.40 = 7200,[object Object],New: 3750 * 2.00 = 7500,[object Object],20,000 kilos of commodity B sells for $15.00/kilo.  The quantity sold decreases by 15% as the price increases by 1/5.,[object Object],New price = 15.00 * (6/5) = 18.00         New quantity = 20000 * .85 = 17000,[object Object],Old: 20000 * 15 = 300000,[object Object],New: 17000 * 18 = 306000,[object Object],1,000 kilo of commodity C brings in $150.00/kilo.  The quantity purchased drops 25% when the price is increased by 1/3.,[object Object],New price = 150 * (4/3) = 200	New quantity = 1000 * .75 = 750,[object Object],Old: 1000 * 150 = 150000,[object Object],New: 750 * 200 = 150000,[object Object],5,000 bales of crop D sell for $45.00/bale. The price drops 20%, causing the number of bales purchased to increase 18%.,[object Object],New price = 45 * .80 = 36		New quantity = 5000 * 1.18 = 5900,[object Object],Old: 1000 * 5000 * 45 = 225000,[object Object],New: 5900 * 36 = 212400,[object Object],Price Down & Revenues Up = Elastic,[object Object],Price Up & Revenues Up = Inelastic,[object Object],Price Up & Revenues Unchanged = Unit Elastic,[object Object],Price Down & Revenues Down = Inelastic,[object Object]
5-1: What is Supply?,[object Object],Supply is the amount of a product that would be offered for sale at all possible prices that could prevail in the market,[object Object],[object Object],There is an direct relationship between the price of an item and the quantity supplied.,[object Object],As price goes up, the quantity supplied will go up.,[object Object],As price goes down, the quantity supplied will go down. (graphs in motion)video,[object Object]
Change in Quantity Supplied,[object Object],Caused by a change in price,[object Object],Graphically represented by a move along the supply curve,[object Object],Change in Supply,[object Object],Caused by a change in factors other than price,[object Object],Producers offer different amounts of the product to sell at the same prices,[object Object],Graphically represented by a shift of the supply curve, giving an entirely new supply curve  ,[object Object],Can be caused by changes in:,[object Object],cost of resources, productivity, technology, expectations,[object Object],taxes and subsidies, government regulations,[object Object],number of sellers,[object Object]
Supply elasticity is based solely on the nature of the production of a product.  ,[object Object],Can it be made quickly without large influxes of capital or skilled labor?,[object Object],Supply is elastic when a change in price results in a relatively larger change in quantity supplied. (m<+1),[object Object],Supply is inelastic when a change in price results in a relatively smaller change in quantity supplied. (m>+1),[object Object],A product is unit elastic when a change in price results in a proportional change in quantity supplied. (m=-1),[object Object]
5-2: Theory of Production,[object Object],The production function shows how total output changes when the amount of a single variable (usually labor) changes over the short run.,[object Object],The marginal product is the extra output or change in total product caused by adding one more unit of variable input.,[object Object],Can be illustrated with a production schedule or graph,[object Object],(graphs in motion),[object Object],.,[object Object]
Stages of Production,[object Object],I.  Increasing marginal returns,[object Object],- Each additional worker adds more to the total output than the worker before.,[object Object],II. Decreasing marginal returns,[object Object],	- Each additional worker is making a diminishing, but still positive, contribution,[object Object],III. Negative marginal returns,[object Object],	- Each additional worker decreases total output,[object Object]
5-3: Cost, Revenue, and Profit Maximization,[object Object],Break-Even Point – level of production that generates just enough income to cover its total operating costs,[object Object],Total Revenue – all the revenue that a company receives,[object Object],Marginal Revenue – additional revenue a company receives from the production and sale of one additional unit of output,[object Object],Fixed Costs or Overhead - costs that an organization incurs even when there is little or no activity, usually machinery and capital resources,[object Object],Variable Costs – costs that change when the business’s rate of production or output changes, usually labor and raw materials,[object Object],Total Costs – sum of the fixed and variable costs,[object Object]

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Chapters 4 & 5

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