Markets Markets exchanges between buyers and sellers Supply

Markets • Markets – exchanges between buyers and sellers. • Supply – questions faced by sellers in those exchanges are related to how much to sell and at what price. • Demand – questions faced by buyers – the amount of goods and services consumers are willing to buy at various prices at a particular time and place.

The Law of Demand • If all other things are equal, the higher the price of a product or service, the less of it people are willing to buy. • The lower the price, the more people will buy. • Based on the connection between the price of a good or service and the quantity demanded.

Graphing the Law of Demand • Demand Schedule – list that shows the quantities demanded of a product a various prices during a particular time period. • Demand Curve – Each point on the graph shows the quantity purchased at a particular price. The line formed by connecting the points is called a demand curve. • Downward slope shows a negative relationshipas one variable increases, the other decreases.

Why Demand Rises and Falls • Real Income Effect – what people can actually buy with their money; if prices rise and your income stays the same, you are no longer able to buy as much as you once did. • Substitution Effect – when prices increase people tend to choose a similar product in their price range.

The Law of Diminishing Marginal Utility(Returns) • of Diminish – to grow smaller. • Utility – usefulness of a product or the amount of satisfaction it provides. • Marginal Utility – the extra usefulness or satisfaction people get from buying or using more of a product or service. • As people use more of a product or service, the satisfaction they get from their additional purchases declines. • People not willing to pay as much for the second, third, or fourth. • When it gets to the point where the marginal utlility is less than the price the item, he or she stops buying.

Vocabulary • • • Market Supply Demand Law of Diminishing Marginal Utility • • Demand Schedule Demand Curve Real Income Effect Substitution Effect

Analyzing Market Demand • A demand curve starts with preferences of individual buyers. • Points along the curve show your willingness and abilityu to buy a good or service at a particular price. • Market Demand – total of all of the individual demands with a market. • When curve shifts to the left –decrease in demand • Shifts to the right – increase in demand.

Causes of Shifts in Demand • • Price Average Income Changes in Population Changes in Complementary products; complements are products or services that are used together. • Substitutes • • Changes in personal preferences. Special influences. Fads Expectations about the future.

Putting It All Together • Work with a partner to list the brand names of ten goods you use. • Next, try to identify a complementary product and a substitute for each. Then predict what would happen to the demand for your favorite item or brand its complementary products if the item doubled in price.

Demand Elasticity • Elasticity - Consumers are more responsive to changes in the prices of some goods and services than others. • Measure elasticity of demand by how sensitive consumers are to a change in price. • Elastic – when a specific change in price causes a relatively large change in the quantity demanded. • Inelastic – if a change in price does not bring much of a change in the quantity demanded.

Effects of Elasticity • Elastic - some products are more elastic because they have more substitutes than others. • Inelastic – products that have few substitutes tend to be inelastic. • If the cost of an item represents a large percentage of a consumer’s real income, a change in the price will have a large effect on demand. • Time – some items are inelastic in the short run, but elastic in the long run. • Elasticity closely related to competition. The more choices the more competitive.

Putting It All Together • List some items that you purchase regularly. Which are elastic in demand? Which are inelastic in demand? • Explain how you decided which was which?