Households, Businesses, And Governments
CHAPTER TEN
Supply and Demand
In economics, what does the word supply
mean?
The word supply is the amount of goods
and services producers want to
provide at different prices.
In your groups, discuss what happens to
supply as the price of goods or
services increase and decrease.
As the price of goods goes up producers
are willing to produce more goods. If
the price decreases producers are not
willing to produce as much.
What does the word demand mean?
The word demand refers to the quantity of
goods or services consumers are
willing to purchase at different prices.
Supply and Demand
In your groups, discuss what happens to
demand when the price increases and
decreases.
As the price of goods goes down the
supply will go down because
consumers buy more ( demand
increases). When the price increases
supply will increase because
consumers will buy less ( demand
decreases).
What is a surplus?
A surplus is having more of a product than
is demanded.
What is a shortage?
A shortage occurs when suppliers produce
less than is demanded by consumers.
Supply and Demand
Using the chart discuss in your groups the following
questions.
What happens to the price and quantity as demand
increases?
As the demand increases the price increases but the
quantity decreases.
What happens to price and quantity as the supply
increases?
As the supply increases the price and quantity
increase.
What happens to the price and quantity as demand
decreases?
As demand decreases the price decreases but the
quantity increases.
What happens to price and quantity as supply
decreases?
As the supply decreases the price and quantity
decrease.
What happens when the market reaches equilibrium?
When supply and demand reach equilibrium all of the
goods produced will be sold and the market is
said to be cleared.
Complements and Substitutes
What are complements?
Complements are goods that make other goods
more desirable, like peanut butter and jelly.
In your groups, give an example of
complements?
What are substitutes?
Substitutes are goods or services that are used
to replace other goods and services. For
example you buy store brand cereal instead
of a name brand.
In your group give some examples of
substitutes.
Factors Affecting Supply
Name three factors that affect supply?
Three factors that affect supply are:
1) Costs of production
2) Degree of competition
3) Changes in technology
Explain how costs of production affects supply?
When cost of production decreases, profit
increases and supply increases.
Explain how the degree of competition affects
supply.
If there is a high degree of competition, more
goods will be produced at a cheaper cost to
the consumer.
How does technology affect supply?
New technology increases efficiency which
lowers the cost of producing the product.
Factors Affecting Demand
Name two factors that affect demand.
Two factors that affect demand are:
1) Consumer tastes
2) Change in income levels
What is consumer tastes?
Consumer tastes are things that the consumer
wants to buy. As these tastes change so does
the demand for products and services.
How does a change in income levels affect
demand?
If income levels rise the demand for goods will
increase. If income levels decrease so will the
demand for goods.
Government Actions and
Interventions in the Economy
Explain how the government uses taxes to
motivate people into certain actions.
The government uses taxes to motivate
people into certain actions .
1) If the government wants to stimulate
the housing industry they will give a
tax deduction on interest paid on
home loans.
2) If they want to stimulate research and
development they will give a tax
deduction to companies that work in
that field.
3) If the government wants to reduce the
use of tobacco or gas use they will
raise the taxes on those products.
Government Actions and
Interventions in the Economy
What is the purpose of the antitrust laws?
Antitrust laws:
1) Stop companies from forming monopolies.
2) Stop companies from selling products for a
price below the cost of making the product,
in order to drive smaller companies out of
business. This is called price fixing.
What organization ensures that these laws are
carried out?
The Federal Trade Commission (FTC) enforces
the antitrust laws.
What is the function of the Federal
Communications Commission?
The Federal Communications Commission
(FCC) regulates the television and radio
industries.
Government Actions and
Interventions in the Economy
Explain the purpose of the Department of
Agriculture.
The Department of Agriculture ensures that
meat products have been prepared in
sanitary conditions and contain
acceptable levels of bacteria.
Global Economy
What is free trade?
Free trade is the elimination of barriers to
trade with foreign countries.
What is protectionism?
Protectionism is the policy of increasing
trade barriers to reduce the imports
into a nation.
What is a trade deficit?
A trade deficit occurs when a country
imports more goods than it exports.
What is a balance of trade.
Balance of trade occurs when the goods
imported equals the goods exported.
Balance of Trade
What is meant by the phrase foreign
exchange rate?
The foreign exchange rate is the value that
one currency trades for with respect to
another currency.
Explain how foreign exchange rates affect
the economy.
If the U.S. dollar is more valuable than the
British pound U.S. imports will go up
and British exports will go down.
If the U.S. dollar is less valuable than the
British pound then U.S. imports will
decrease and U.S. exports will increase.
Understanding Economic
Indicators
What is one of the most important
economic indicators?
One of the most important economic
indicators is the stock market.
When the economy is good, people buy
stocks, and companies have money
to invest in capital.
When the economy is bad, people sell
stocks, and companies do not have
money to invest.
What are stock exchanges?
Stock exchanges are places where
investors buy stock in a company.
The New York Stock Exchange (NYSE)
and the National Association of
Securities Dealers (NASDAQ) are two
of the largest stock exchanges.
Understanding Economic
Indicators
How is the unemployment rate an economic
indicator?
The percentage of unemployed workers is an
indicator of how well the economy is able
to employ those that are looking for
work.
What is inflation?
Inflation is a period in which prices increase.
What is deflation?
Deflation is a period of time when prices
decrease.
In your group discuss how inflation and
deflation affect the economy.
If inflation gets too bad, people will quit
buying goods and factories will lay off
people.
If deflation gets too bad, producers will not
produce as much because they are not
making a profit.
Understanding Economic Indicators
What is the leading indicator of the amount
of inflation or deflation?
The Consumer Price Index (CPI) is the leading
indicator of the amount of inflation or
deflation in the country.
What is the Consumer Price Index?
The Consumer Price Index is a measure of
the average price of all goods and
services sold within the nation.
A CPI greater than 100 means that inflation
has occurred and a CPI of less than 100
means that deflation has occurred.
What is used to determine the standard of
living in a country?
The Gross Domestic Product ( the value of all
goods and services / population ) is a
measure of the standard of living in a
country.
Government Revenue and Spending
Name some ways the government uses it
tax revenues.
The government uses its tax revenues on
programs of national interest such as:
1)
Social Security: provides a modest
retirement income for those over 67
as well as income for those who are
disabled.
What is the difference between Medicare
and Medicaid?
Medicare provides medical benefits for
those of retirement age.
Medicaid provides medical coverage for
low income families or those on
welfare.
Government Revenue and Spending
2)
Military spending
3)
Making payments on the
National Debt.
http://www.usadebtclock.com/
Monetary Policies
What government agency is responsible
for printing, coining of money?
The Treasury Department is responsible
for the printing and coining of money.
Which government agency is responsible
for controlling the supply of money?
The Federal Reserve is responsible for
controlling the Nation’s supply of
money.
Monetary Policies
Explain ways the Federal Reserve
controls the Nation’s money supply.
The Federal Reserve controls the
Nation’s money supply by:
1) Buying treasury bills from the
public. This puts more money into
the economy during deflation.
2) By changing interest rates. Higher
interest takes money out of
circulation and lower rates puts
money back into circulation.
3) Changing bank reserve
requirements. This is money that
banks must keep in their vault.
Raising requirements takes money
out of circulation. Lowering money
increases circulation of money.
What is the purpose of the Federal
Deposit Insurance Corporation?
The Federal Deposit Insurance
Corporation or ( FDIC) ensures that
everyone who deposits money into a
bank account will not lose all their
deposits.