ECONOMICS LECTURE 3

LECTURE 3 THE MARKET MECHANISM PART 1

WELCOME TO ECONOMICS

CHAPTER 3 - NTERESTING FACTS

HOMEWORK

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TERM 1 TOPICS

6. PRICE CONTROLS

ELASTICITY

ALTERNATIVE ECONOMIC SYSTEMS

MARKET MECHANISMS

PRODUCTION POSSIBILITY CURVES

THE BASIC ECONOMIC PROBLEM

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PPC/PPF - shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employedLAW OF DIMINISHING RETURNS

RECAP

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THOUGHT

Where goods and services are traded in exhange for money with an understanding of inherent value.Optimal distribution found through this perceived value.Links the actions of consumers and producers.

THE MARKET MECHANISM

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Do people want more or less stuff if the price goes down?Would producers make more if they are going to earn more money? Where is the ideal point when buyers and sellers get together?

SUPPLY & DEMAND

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DEMAND GRAPH

DEMAND SCHEDULE FOR CUPCAKES

Demand is from the point of view of consumers (buyers) so we shall examine demand when buying delicious cupcakes! The theory of demand - there is an inverse relationship between price and quantity demanded. For example, when the price goes down for cupcakes, the quantity consumers buy will increase.

DEMAND

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3 REASONS DEMAND SLOPES DOWN

MARGINAL UTILITY

INCOME EFFECT

SUBSTITUTION EFFECT

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Population / Price is expected to change Laws Advertising Substitutes / Season Trends Income Complementary goods

FACTORS THAT SHIFT THE DEMAND CURVE

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SUPPLY GRAPH

Supply is from the point of view of producers (sellers).The theory of supply states that there is a direct relationship between price and quantity supplied. When the price increases for clothing, the quantity producers make will increase. This is because an increase in the price gives clothing manufacturers an incentive to produce more because they want to make more money. If the price for clothing decreases, the quantity producers make will also decrease. There is little incentive to continue production as they would be making less money.

SUPPLY

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Production costs Laws Availability of resources New technology Expected profit Subsidies

FACTORS THAT SHIFT THE SUPPLY CURVE

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S & D

Market equilibrium means we will be putting demand and supply together. When the two come together they set the market equilibrium price and quantity (the market clearing point).

MARKET EQUILIBRIUM

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S & D

Lets assume the season has changed from summer to winter in Scotland. What would happen to the supply or demand for jackets? At this point we are referring to a shift in the curves. Remember there are factors for demand = PLASTIC and factors for supply = PLANES. The changing season would definitely affect demand as it's affecting consumers. Will the demand increase or decrease? In this case we should see an increase in demand. No one wishes to be cold during the winter in Scotland. Therefore, the demand will shift to the right for an increase, extending along the supply curve.

MARKET EQUILIBRIUM

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The carrots are criticised for their poor qualityThe farmer invests in new technology making farming more efficient Bad weather conditions destroy much of the crop The price of carrots are expected to increase next week There is a decrease in the price of fertiliser used in growing carrots

ACTIVITY ANSWERS

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CHAPTER 7 - 263 - 270CHAPTER 8 - P313 - 322

HOMEWORK

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THE MARKET MECHANISM PART 2

NEXT WEEK

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