Economics Economics Learning Targets Define supply and demand

Economics

Economics Learning Targets • Define supply and demand • Draw a supply and demand curve and label the parts. • Demonstrate the relationship that prices play in supply and demand for different goods and services. • Define surplus, shortage, and equilibrium. • Label the parts of the supply and demand curve which identify shortage, surplus, and equilibrium.

What is Economics? • The social science that analyzes the production, distribution, and consumption of goods and services.

The Law of Supply • Law stating that in general, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa.

The Law of Supply

The Law of Demand • Law that states that, in general, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.

The Law of Demand

Equilibrium • Equilibrium- the price at which the quantity demanded by buyers equals the quantity supplied by the sellers. Also: market-clearing price • At equilibrium, every buyer finds a seller and every seller finds a buyer

Shortage • Shortage- occurs when the quantity demanded for a product exceeds the quantity supplied. • Why? Price of the product is below the market equilibrium price. – The price is low enough where people will buy it up. – What SHOULD happen?

Surplus • Surplus- occurs when the quantity supplied EXCEEDS the quantity demanded • Examples? – What happens to the price in response? – Increase or Decrease?

Opportunity Cost • Opportunity cost-is the best alternative that we give up, when we make a choice or a decision. • Nearly all decisions involve trade-offs. • Examples?

Elasticity • Elasticity- is the measurement of how changing one economic variable affects others. For example: • "If I lower the price of my product, how much more will I sell? " • "If I raise the price, how much less will I sell? " • "If we learn that a resource is becoming scarce, will people scramble to acquire it? "

Complementary Goods • Complementary goods- are described as those goods that are used with another good. • Examples? – Peanut Butter & Jelly • A ↓ in the price of one good will result in ↑ in demand of both the goods. Conversely, an ↑ in the price will result in a ↓ of demand of both the goods.

Complementary Goods • Example of a complimentary good is pizza and pizza bread. Demand for pizza bread is proportional to demand for pizza. ↑ or ↓ in pizza demand will result in ↑ or ↓ of demand of pizza bread. • A perfect complement of a good one that MUST be used with another good. • Ex: A pair of shoes. • Ex: Computer & Software

Substitute Goods • Substitute goods- are those where one good can be used in place of other. • Examples? Butter and margarine. • ↑ price of one substitute good shall be accompanied by a proportional ↑ in demand of the other. • Conversely, a ↓in price of one will ↓ the demand of another. A perfect substitute is one that can be used in exactly the same way as its counterpart.