FrontPage: NNIGN
"It was just revealed that the Federal Reserve was hacked on Sunday. It's pretty serious. In
fact, they say the hackers could've made off with as much as negative $14 trillion." –Jimmy
Fallon
"The Postal Service announced that it will stop delivering mail on Saturdays in an effort to
save $2 billion a year. Postal workers were shocked: 'We were supposed to deliver mail on
Saturdays?" –Jimmy Fallon
"A new study says that working fewer hours can slow global warming. So you know what that
means? President Obama's economic policy is also his climate change policy." –Jay Leno
"Next year's Super Bowl is already in the news. It takes place in New Jersey. The NFL says it
wants to prevent another blackout. This one involves keeping Chris Christie away from his
microwave." –Conan O'Brien
"A member of Congress is criticizing Steven Spielberg after he discovered parts of the movie
'Lincoln' are historically inaccurate — particularly the scene where Lincoln dies in the mouth
of a great white shark." –Conan O'Brien
"People are still trying to figure out why the power went out Sunday at the Super Bowl. Today
they found out the reason. Turns out China cut off the electricity for nonpayment of our bill." –
Jay Leno
The Last Word: Chapter 7 SR – due Friday
Chapter 7
Section 1 - Demand
The “Marketplace”
Consumers influence the price of goods
in a market economy.
 Demand is how people decide what to
buy and at what price.
 Supply is how sellers decide how much
to sell and what to charge.
 A market represents actions between
buyers and sellers.

Voluntary Exchange
The seller sets the price.
 The buyer agrees to the product and
price through the act of purchasing
product.
 Supply and demand analysis is a model
of how buyers and sellers behave in the
marketplace.

The Law of Demand
Demand is created only when the customer is
both willing and able to buy product.
 As price goes up, quantity demanded goes down.
As price goes down, quantity demanded goes up.
 Real income effect is when people are limited by
their income as to what they can purchase.
 Substitution effect is when people can replace
one product with another if it satisfies the same
need.

The Law of Demand
Utility is the ability of any good or service to
satisfy consumer wants.
 People will purchase additional items until the
satisfaction from the last unit is equal to the
price.
 The lessening of this satisfaction with each
additional purchase is called diminishing
marginal unity.

Section 2 –
The Demand Curve
and Elasticity of
Demand
Graphing the Demand Curve

A demand schedule is a table of prices
and the quantity demanded at each
price.
 It lists quantity demanded at different prices

A demand curve graphs the quantity
demanded of a good or service at each
possible price.
Quantity Demanded vs. Demand

A change in quantity demanded is caused by a
change in the price of a good.

If something other than price causes demand to
increase or decrease, this is known as a change in
demand and shifts the demand curve.
Determinants of Demand
Population
 Income
 Tastes and preferences, including fads
 Substitutes are when a new competitor
is added or an old competitor leaves the
market.
 Complementary goods are products
that rely upon one another, demand for
one affects demand for the other.

The Price Elasticity of Demand
How much consumers respond to a given change
in price is elasticity.
 Elastic demand occurs when the demand for
some goods is greatly affected by the price.
 Inelastic demand occurs when the demand for
some goods is less affected by price.
 How many substitutes exist and how closely they
provide the same quality and service affects
elasticity of demand (fewer or no substitutes make
demand inelastic).

The Price Elasticity of Demand

Percent of a personal budget spent on that item
affects elasticity of demand (the higher the percent
of budget, the more elastic the demand).

How much time consumers have to adjust to the
new price affects elasticity of demand (more time
makes for greater elasticity).
FrontPage: NNIGN
Los Angeles Residents Politely Ask LAPD Not To Shoot Them
The Last Word: Chapter 7 GR – due Friday
Section 3 –
The Law of Supply
and the Supply Curve
The Law of Supply
Supply is the willingness and ability of producers
to provide goods to the consumer.
 As prices rise, the quantity supplied generally
rises.
 As prices fall, the quantity supplied falls.
 A direct relationship exists between price and
quantity supplied.

The Incentive of Greater Profits
Increase in price and increase in production leads
to an increase in profits.
 Higher prices encourage more competitors to join
the market.
 Higher prices turn potential suppliers into actual
suppliers, adding to the total output.

The Supply Curve
Graphs and tables can explain the law
of supply.
 A supply schedule shows the quantity
supplied at each given price.
 A supply curve graphs the quantities
supplied at each possible price.
 The relationship between quantity and
price is direct and always moving in the
same direction.

Quantity Supplied vs. Supply
A change in quantity supplied is caused by a
change in price.
 Something other than price can cause a change in
supply as a whole to increase or decrease.

The Determinants of Supply




The price of inputs, or the cost of
production—raw materials, wages, insurance,
utilities, etc.—can cause increase in supply.
Competition, or the number of companies in
an industry, can cause an increase in supply.
An increase in taxes can cause a decrease in
supply.
An improvement in technology, or the science
used to develop new products or methods of
production and distribution, can cause an
increase in supply.
The Law of Diminishing Returns
Adding units to increase production
increases total output for a limited time
period.
 The extra output for each additional unit
will eventually decrease.
 Businesses will continue to add units of
a factor of production until doing so no
longer increases revenue

Section 4 –
Putting Supply and
Demand Together
Equilibrium Price
In the real world, demand and supply work
together.
 The price at which the supply meets the
demand—where the two curves intersect—is
the equilibrium price.

Shifts in Equilibrium Price
If the demand curve shifts due to something
other than price, the equilibrium price will
change.
 If the supply curve shifts due to something
other than price, the equilibrium price will
change.

Prices Serve as Signals
Rising prices signal producers to make more and
consumers to purchase less.
 Falling prices signal producers to make less and
consumers to purchase more.
 Shortages occur when the quantity demanded (at
equilibrium price) is greater than quantity supplied.
 Surpluses occur when the quantity supplied (at
equilibrium price) is greater than quantity
demanded.
 Market forces can cause the prices to rise or fall to
correct shortages and surpluses.

Price Controls





Price ceilings are a maximum price set by the
government to prevent prices from going above a
certain level.
Items in short supply might be rationed.
Shortages can lead to a black market, or illegal
places to purchase such products at exorbitant prices.
Price floors are minimum prices also set by the
government to prevent prices from going below a
certain level.
Price floors set minimum wage levels and support
agricultural prices.