Markets, Demand and Supply, and the Price System

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Chapter 3
ANALYCIA STAPLETON January 27, 2009 Macroeconomics
, Creswell, 003 www.kent.edu/si

• Markets, Demand and Supply, and the Price System
• Fill-in Exercise
• adapted from Sherry Creswells lecture notes
• Economics, 7th Edition
• Boyes/Melvin

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Markets and Exchange

• Allocation Systems ______________________________
  ______________________________________________
• ________________is a place or service that
  enables buyers and sellers to exchange goods and
  services.
• Monetary exchanges involve exchanging ___________
  for ____________________

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Allocation Systems

• Who gets the goods and services?
• Types of Allocation Systems

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Which System Works?

• Fairness ? none of the systems are fairwhy????
• _________________________________________________
  ___________
• ______________________________ increase supplies
  and raise standards of living ? according to
  Professor Creswell, this one works the best and
  is the only valid allocation method

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_________________________

• As price of a good rises, consumers buy less and
  vice versa.
• (Draw a picture here to depict the above
  statement)
• Depicts the quantity-price relationship
  with all else assumed to be constant a.k.a.
• _______________________________

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Representations of Demand

• Demand Schedule vs. Demand Curve

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Whats Going on Here Figure 3

• What can you tell from
• The demand schedule
• _________________________________________________
  __________________________________________________
  _____________________
• The demand curve
• _________________________________________________
  __________________________________________________
  _____________________

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Aggregation of DemandWhats that? Explain
below.________________________________________
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D vs. QD

• Demand Quantity
• Demand

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Which one shifts and which one is a movement?
Demand Quantity Demand
WHY?
WHY?
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Now You Try!!!!

• Which of the following would not cause a decrease
  in the demand for bananas?
• Reports surface that bananas are infected with a
  deadly virus.
• Consumers incomes drop.
• The prices of bananas rises.
• Consumers expect the price of bananas to decrease
  in the future.
• WHY______________________________________________
  _________________________________

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Whats Going on Here Figure 5

• So which one is it????? CHANGE IN D or QD??
• Figure (a)
• _________________________________________________
  __________________________________________________
  _____________________
• Figure (b)
• _________________________________________________
  __________________________________________________
  _____________________

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Determinants of Demand

These shift or cause a movement along the demand
curve? Circle one
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Substitutes and Compliments
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International Effects

• The ________________ is also a determinant of
  demand when a good is sold in both the US and
  other countries ? how???
• Exchange rate the rate at which monies of
  different countries are exchanged
• Underline the key words in the above definition

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International Effects Cont.
Exchange Rate as Foreign Currency per
Foreign Currency Price
Price
x

• Example 2,600 20 x 130/
• To convert from yen per dollar to dollar per
  yen use inverse but make sure you realize you
  must change the formulae!
• Example .0077/ 130/

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Law of Supply

• Definition As the price of a product rises,
  producers will be willing to supply more.
• (Draw a picture here of the Law of Supply)
• The height of the supply curve at any quantity
  shows the ______________________________
  necessary to induce producers to supply that next
  unit to market.

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Law of Supply Cont.

• The height of the supply curve at any quantity
  also shows the ___________________ cost of
  producing the next unit of the good.
• What is opportunity cost?
• _________________________________________________
  _______________________
• Examples

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Representations of Supply

• ________________________________ A table or list
  of the prices and corresponding quantities
  supplied of a particular good or service. It is
  the price-quantity relationship presented in
  tabular form.
• Supply Curve
• _________________________________________________
  ___________________

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Whats Going on Here Figure 6

• What can you tell from
• The supply schedule
• _________________________________________________
  __________________________________________________
  _____________________
• The supply curve
• _________________________________________________
  __________________________________________________
  _____________________

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Aggregation of SupplyWhats that again? Explain
below.
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S vs. QS
Supply Quantity Supply
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Changes in Supply

• Change in Quantity Supplied _____________________
  along the same supply curve in response to a
  price change.
• Change in Supply ______________
• in entire supply curve.

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Whats Going on Here Figure 9

• So which one is it????? CHANGE IN S or QS??
• Figure (a)
• _________________________________________________
  __________________________________________________
  _____________________
• Figure (b)
• _________________________________________________
  __________________________________________________
  _____________________

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Factors that Shift Supply
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Equilibrium

• Equilibrium ____________________________________
  ________________________________________
• A market is said to be in __________________ at
  all points at which the quantities demanded and
  supplied are not equal.
• A surplus occurs whenever ________________.
• A shortage occurs whenever ________________.
• Surpluses and shortages can be resolved with
  __________________________.

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Equilibrium (Table)Circle either surplus or
shortage in the example and write what the price
change will be for each (price fall or price
rises?)
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Figure 8 Equilibrium
Show where there is a shortage and where there is
a surplus
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Price Floors and Ceilings

• ______________ price is not allowed to decrease
  below a certain level.
• Examples ___________________________
• ______________ price is not allowed to increase
  above a certain level. Examples
  ___________________________

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This is an example of a ____________________
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What is going on in the purple circles? Explain.
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
______
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This is an example of _________________________
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What is going on in the purple circles? Explain.
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
______