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Microeconomics

Microeconomics. Unit 3. Market. Arrangement that allows buyers and sellers to exchange things Production side Supply Factors of production Consumption side Demand Determinants of demand. Demand. Amount of a good desired at a given price in a specific time. Graphing.

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Microeconomics

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  1. Microeconomics Unit 3

  2. Market • Arrangement that allows buyers and sellers to exchange things • Production side • Supply • Factors of production • Consumption side • Demand • Determinants of demand

  3. Demand • Amount of a good desired at a given price in a specific time

  4. Graphing • The price is always located on the vertical axis and quantity is always located on the horizontal axis. • Numbers increase as they move away from the origin. $ 0 0 Q

  5. Graphing Demand • Demand Schedule • Ice Cream Sundae Price • 1 5.00 • 2 4.50 • 3 4.00 • 4 3.50 • 5 3.00 • 6 2.50 • 7 2.00

  6. Graphing Demand • Demand Curve $ 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 D 1 2 3 4 5 6 7 8 Q

  7. Law of Demand • Demand increases as price decreases • Demand decreases as price increases • Inverse Relationship

  8. Quantity Demanded • Quantity demanded is caused by a change in price • All other factors remain the same

  9. Elasticity • How sensitive a product is to a change in price • Elastic – very responsive • Inelastic – not responsive

  10. Elasticity Graphed $ ED ID Q

  11. Calculating Elasticity • Run over Rise % Quantity % Price • PRACTICE (< > = 1) • Price of Gasoline up from $3.50 to $3.60 while quantity demanded down from 6000 gallons to 5900 gallons. • Price of candy down from $3.00 to $2.50 while quantity demanded up from 30 bags to 40 bags. • Quantity of Senior Sweats down from 305 to 300 sets while price up from $30 to $35.

  12. Income Effect • The change in consumption resulting from a change in real income • Normal Good • Reacts normally or follows the law of demand • Inferior Good • Demand decreases as income increases • “Great Cracker Taste Test”

  13. Changes in Demand • Changes in the Determinants of Demand cause changes in Demand at every Price • Determinants of Demand • Income • Attitude • Substitute • Complement • http://nbr.com/2013/04/05/bright-ideas-getting-to-the-point/

  14. Increase in Demand $ D2 D Q

  15. Effects of Determinants • Increase Demand • Get a raise • Popular advertisement • No substitute choices • New products to go with the original

  16. Decrease in Demand $ D2 D Q

  17. Effects of Demand • Decrease Demand • Lose your job • Fad not popular anymore • New competitor in the market • Complement not available anymore

  18. Critical Thinking • Income • Attitude • Substitute • Complement • Price D = curve shifts left or right Qd = movement is on the curve

  19. Exit Slip • Use the blank half sheet of paper to make up a scenario in which demand will change over time. • Name the product • Describe the change in the market • State which determinant changed • Graph the changes on demand • Don’t forget to put you name on the paper • Due at the end of the period

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