I. The marketplace
      A. A market is defined as an institution or mechanism which promotes trade by bringing together buyers (demanders) and 
           sellers (suppliers).
      B. Replaced barter which is the direct exchange of goods.
      C. A modern market brings money and prices into the circular flow of goods.

II. Demand is willingness to buy.
     A. Demand is a schedule of the amounts of goods and services consumers are willing and able to buy at a set of prices.
     B. Law of demand:: price and quantity are inversely related.
         1. As price goes up, quantity demanded goes down.
         2. As price goes down, quantity demanded goes up.
         3. Why more is bought as price drops.
             a. Income Effect: as the price of a good drops, consumers feel richer and buy more.
             b. Substitution Effect: as the price of a good drops, it becomes cheaper relative to 
                 other goods and consumers buy more

      C. Demand schedule-Introduction to Graphs will provide tutoring for those needing help with graphs.

Price  5 4 3 2 1	Quantity 1 2 3 4 5
D. What determines demand              1. The tastes or preferences of consumers           2. The number of consumers           3. The incomes of consumers           4. Consumer expectations           5. The price of related goods               a. Substitutes are goods that compete with each other such as hot dogs and hamburgers.                   If the price of a good increases, the demand for its substitutes will increase.               b. Complements are goods that are purchased together like hot dogs and rolls.                   If the price of a good increases, the demand for its complement will decrease.            6. Demand analysis from Dr. Kim Sosin of the University of Omaha.            7. ''Ceteris Paribus'' is Latin for all other variables remain the same.      E. Classification of consumer goods          1. Superior Goods: consumers buy more as income increases (steak, rolls, vacations)          2. Inferior Goods: consumers buy less as income increases (hamburger, bread, movies)      F. Changes (shifts) in Demand          1. A decrease in demand shifts the demand curve to the left          2. An increase in demand shifts the demand curve to the right

	Note: Increase is to the right because the x-axis increases to the right.
G.  Explorations in Economic Demand by Kim Sosin, Department of Economics of the University of Omaha has good examples.       H. Check your knowledge of Demand by answering questions provided by Samuel L. Baker, Ph.D. of the University of South Carolina.

III. Supply is willingness to sell       A. Supply is a schedule of the amounts of goods or services producers are willing and able to sell at a set of prices.       B. Law of supply: price and quantity supplied are directly related because price and expected profit are directly related           1. As price goes up, quantity supplied goes up           2. As price goes down, quantity supplied goes down       C. Supply schedule
Price  5 4 3 2 1	Quantity 5 4 3 1 0

D. What determines supply          1. Product costs as affected by              a. Technology              b. Resource prices              c. Taxes and subsidies          2. Price of related goods              a. If 2 goods are substitutes, price up for one will increase supply of the other (price of gasoline up,                   supply of alternative fuels increases) as companies see more potential profit              b. If 2 goods are complements, price down of one will increase supply of other (price of PC's down,                   supply of computer software up) as the expected increase in sales of the first item should increase sales of the complement.          3. Expectations concerning the above listed variables will affect supply     E. Changes (shifts) in supply         1. A decrease in supply shifts the supply curve to the left         2. An increase in supply shifts the supply curve to the right

	Note: Increase is to the right because the x-axis increases to the right.
F. Explorations in Economic Supply from Dr. Kim Sosin of the University of Omaha has good examples.

IV. Equilibrium is where suppliers and demanders agree on price and quantity as depicted by the intersection        of their supply and demand curves.        A. If the price is too high, a surplus results and price must be lowered (the world economic slowdown in 1999             required lowering price to work down supply)        B. If the price is too low, a shortage results. This happens with toys every Christmas (Cabbage Patch Dolls)       C. If they can not agree, as happened with Beta videotape machines, then the curves do not intersect and the             goods are not sold.

 
V. How changes in supply and demand affect equilibrium price and quantity

D up and S up equally D up causes P up and Q up S up causes P down and Q up Result is P same and Q up	D up and S down equally D up causes P up and Q up S down causes P up and Q down Result is P up and Q same\
View a dynamic model of Changes in Supply, Demand and Market Equilibrium by Dennis Kaufman University of Wisconsin-Parkside.
D down and S up equally D down causes P down and Q down S up causes P down and Q up Result is P down and Q same	D down and S down D down causes P down and Q down S down causes P up and Q down Result is P same and Q down
D up and S up more
D up and S down more          Check your knowledge of Supply, Demand, and Equilibrium by answering questions provided by Samuel L. Baker, Ph.D. of the University of South Carolina.          For a real life example visit Cattle Market Equilibrium

VI. Price ceilings and floors      A. A price ceiling keeps prices from rising (rent control)      B. A price floor keeps prices from falling (farm price supports)

 

 

 

Last Chapter	Books $127.00 The Future of the Telecommunications Industry: Forecasting and Demand Analysis (Topics in Regulatory Economics and Policy, No 33)
Chapter 4 Class Discussion Questions
Chapter 4 Homework Questions
Next Chapter
Table of Contents
Economics Internet Library