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Boyes & Melvin, 9 th Edition. Chapter 1-3 Review. 1. Economics . Everything is scarce. Economics is the study of how best to allocate scarce resources among competing uses. Chapter 1-3 Review. 2. Economics.

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boyes melvin 9 th edition
Boyes & Melvin, 9th Edition

Chapter 1-3 Review

1

economics
Economics
  • Everything is scarce.
  • Economics is the study of how best to allocate scarce resources among competing uses.

Chapter 1-3 Review

2

economics1
Economics
  • is a study of human behavior. How we spend our money indicates what we think is important.

Chapter 1-3 Review

3

rational behavior
Rational Behavior
  • The theory that people act in their own best interest.

Chapter 1-3 Review

4

marginal
Marginal
  • Marginal means “extra” or “additional”

Chapter 1-3 Review

5

marginal cost
Marginal Cost
  • Additional costs involved in producing one additional item, or taking an additional action.

Chapter 1-3 Review

6

marginal benefit
Marginal Benefit
  • Additional benefits that result from producing one additional item, or taking an additional action.

Chapter 1-3 Review

7

marginal analysis
Marginal Analysis
  • Use Marginal Cost & Marginal Benefit in making decisions.
  • If the Marginal Benefit > Marginal Cost, you do it.

Chapter 1-3 Review

8

opportunity costs
What you give up to do something else.

The economic value of your next-best alternative

What are you not doing?

May be non-financial

Opportunity Costs

Chapter 1-3 Review

9

maximizing behavior
Maximizing Behavior
  • Consumers maximize their utility (satisfaction) given limited resources.
  • Businesses try to maximize profits by using resources efficiently in producing goods.
  • Government maximizes general welfare of society.

Chapter 1-3 Review

11

economic interactions with others occur because
Economic interactions with others occur because:
  • We can’t produce all of the goods we need or desire.
  • We have limited time, energy, and resources to produce things we could make for ourselves.

Chapter 1-3 Review

12

market
Market
  • Where buyers (demanders) and sellers (suppliers) meet

Chapter 1-3 Review

13

supply
Supply
  • The ability and willingness to produce a good or service at different price levels in a given time period.

Chapter 1-3 Review

14

demand
Demand
  • The ability and willingness to consume a good or service at different price levels in a given time period.

Chapter 1-3 Review

15

individual demand
Individual Demand
  • A demand exists only if someone is willing and able to pay for a good.
  • When people purchase a product there is an opportunity cost.

Chapter 1-3 Review

16

law of demand
Law of Demand
  • The quantity of a good demanded in a given time period increases as its price falls.

Chapter 1-3 Review

17

demand schedule
Demand Schedule
  • A table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period.

Chapter 1-3 Review

18

demand schedule1
Demand Schedule

PriceQuantity Purchased

$1 8,000

$2 4,000

$3 2,000

$4 500

$5 1

Chapter 1-3 Review

19

demand curve
Demand Curve
  • A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period.

Chapter 1-3 Review

20

demand curves
Demand Curves
  • Demand curves show us how changes in market prices alter consumer behavior.

Chapter 1-3 Review

21

demand curve1
Demand Curve

Chapter 1-3 Review

22

determinants of demand
Determinants of Demand
  • Tastes & Preferences
  • Income
  • Expectations
  • Number of buyers
  • Price of related goods
    • Substitutes Coke and Pepsi
    • Compliments Peanut Butter, Jelly, and Bread

Chapter 1-3 Review

23

shifts in demand
Shifts in Demand
  • The determinants of demand can and do change.
  • A shift in demand is a change in the quantity demanded at any (every) given price.

Chapter 1-3 Review

24

shifts in demand1
Shifts in Demand

Chapter 1-3 Review

25

movements vs shifts
Movements vs. Shifts
  • Changes in quantity demanded
    • movements along a demand curve, in response to price changes for that good.
  • Changes in demand
    • shifts of the demand curve due to changes in tastes, income, other goods, or expectations.

Chapter 1-3 Review

26

the market demand curve
The Market Demand Curve
  • Market demand represents the combined demands of all market participants.
  • The separate demands of individual consumers is added up to determine the total quantity demanded at any given price.

Chapter 1-3 Review

27

law of diminishing marginal utility
Law of Diminishing Marginal Utility
  • As consumption increases, the amount of usefulness/enjoyment goes down.
  • 2 beers is better than 1 but after 6 or 7 you aren’t getting as much enjoyment out of each one.

Chapter 1-3 Review

28

supply1
Supply
  • To understand the complete market, we must also look at market supply.
  • The market supply depends on the behavior of all the individuals willing and able to supply a good at some price.

Chapter 1-3 Review

29

market supply
Market Supply
  • The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period.

Chapter 1-3 Review

30

law of supply
Law of Supply
  • Larger quantities will be offered for sale at higher prices.

Chapter 1-3 Review

31

supply schedule
Supply Schedule

PriceQuantity Produced

$1 15

$2 600

$3 2,000

$4 6,000

$5 12,000

Chapter 1-3 Review

32

market supply1
Market Supply
  • The market supply curve is just a summary of the supply intentions of all producers.

Chapter 1-3 Review

33

supply curve
Supply Curve

Chapter 1-3 Review

34

determinants of supply
Determinants of Supply
  • Price of inputs
  • Factor costs
    • land, labor, capital, know how
  • Technology
  • Other goods
  • Taxes and subsidies
  • Expectations
  • Number of sellers

Chapter 1-3 Review

35

shifts of supply
Shifts of Supply
  • Changes in the quantity supplied
    • movements along the supply curve.
  • Changes in supply
    • shifts in the supply curve.

Chapter 1-3 Review

36

shifting supply curve
Shifting Supply Curve

Chapter 1-3 Review

37

equilibrium
Equilibrium
  • ”Market clearing” balance
  • The Price level where Quantity Supplied is equal to Quantity Demanded.

Chapter 1-3 Review

38

equilibrium1
Equilibrium

Chapter 1-3 Review

39

market surplus
Market Surplus
  • quantity supplied > quantity demanded at a given price.
  • created when the seller’s asking prices are too high - above the equilibrium price.

Chapter 1-3 Review

40

surplus
Surplus

P

Qd

Qs

Qe

Chapter 1-3 Review

41

market shortage
Market Shortage
  • quantity demanded > quantity supplied at a given price.
  • created when the seller’s asking prices are too low - is below the equilibrium price.

Chapter 1-3 Review

42

shortage
Shortage

P

Qs

Qd

Qe

Chapter 1-3 Review

43

the invisible hand
The “Invisible Hand”
  • To overcome a surplus or shortage, buyers and sellers will change their behavior.
  • This happens automatically
    • No government interference is necessary
  • Adam Smith!

Chapter 1-3 Review

44

demand shifts increase
Demand Shifts: Increase

Dnew

Pnew

Qnew

Chapter 1-3 Review

45

demand shifts decrease
Demand Shifts: Decrease

Dnew

Pnew

Qnew

Chapter 1-3 Review

46

supply shifts increase
Supply Shifts: Increase

Snew

Pnew

Qnew

Chapter 1-3 Review

47

supply shifts decrease
Supply Shifts: Decrease

Snew

Pnew

Qnew

Chapter 1-3 Review

48

effect of shifting supply or demand on equilibrium
Effect of Shifting Supply or Demand on Equilibrium

QuantityPrice

Dincreases increases

Ddecreases decreases

Sincreases decreases

Sdecreases increases

Chapter 1-3 Review

49

supply increase demand increase
Supply increase, Demand increase

Snew

Dnew

Pnew

Qnew

Chapter 1-3 Review

50

supply increase demand decrease
Supply increase, Demand decrease

Dnew

Snew

Pnew

Qnew

Chapter 1-3 Review

51

supply decrease demand increase
Supply decrease, Demand increase

Dnew

Snew

Pnew

Qnew

Chapter 1-3 Review

52

supply decrease demand decrease
Supply decrease, Demand decrease

Snew

Dnew

Pnew

Qnew

Chapter 1-3 Review

53

effect of shifting supply and demand on equilibrium
Effect of Shifting Supply and Demand on Equilibrium

SDQuantity increases

SD Price decreases

SD Price increases

SDQuantity decreases

Chapter 1-3 Review

54