HOW DOES A MARKET ECONOMY REQUIRE THESE FORCES TO WORK, AND WORK

WELL?

RE-CAPIN A MARKET ECONOMY:

COMAPNIES/BUSINESSES PRODUCE GOODS OR SERVICESCOMPANIES/BUSINESSES WANT PROFITSCONSUMERS WANT GOODS OR SERVICESCOMPANIES/BUSINESSES COMPETE TO GIVE CONSUMERS

WHAT THEY WANTCONSUMERS WANT TO GET A “BARGAIN”

FREE MARKET ALLOWS FOR COMPETITION AND PRODUCTION OF GOODS DEMANDED BY THE CONSUMERS

REGULATIONS ARE FEW SINCE “LAISSEZ-FAIRE” IS OBSERVED

WHAT IS DEMAND? THE DESIRE TO PURCHASE SOMETHING AT A

SPECIFIED PRICE AND TIME ACCOMPANIED BY THE ABILITY AND WILLINGNESS TO PAY

DEMAND AND WANT ARE NOT THE SAME THINGYOU MAY WANT A NEW CAR BUT….YOU DEMAND IT ONLY WHEN YOU CAN

ACTUALLY BUY IT

DEMANDJOE HAS A CAR WHICH REQUIRES GASOLINEGAS PRICES ARE AS FOLLOWS: PRICE PER GALLON GALLONS PER

WEEK$3.00 5$2.50 10$2.00 15$1.50 20$1.00 25$.50 30

GAS DEMAND/DEMAND CURVE

WHAT HAPPENED?PEOPLE BUY LESS OF SOMETHING AT HIGHER

PRICES THAN THEY DO AT LOWER PRICES

THIS IS CALLED……PRICE EFFECT or LAW of DEMAND

PRICE ELASTICITY OF DEMANDAlso known as : ELASTICITY

or – ELASTICITY OF DEMAND

WHAT IS THIS?IF WE NEED IT, WE BUY ITIF THE PRICE IS LOW AND WE NEED IT, WE

BUY LOTS OF ITIF THE PRICE CHANGES – EVEN UP TO

200% AND WE NEED IT, WE STILL BUY IT…..

WHAT IF WE DON’T NEED IT – WE JUST WANT IT?

H2O SCENARIO AT THE MALL IN THE MALL I’M THIRSTY – I NEED…. WATERI’M EXPECTING TO PAY = $1.00 BUT THE WATER = $2.00

WILL I BUY THE WATER?

Yes I will – WHY?

T-SHIRT SCENARIO AT THE MALLH&M – STORE FOR FAIRLY INEXPENSIVE YET TRENDY STUFF

HAS T-SHIRTS FOR SALEI EXPECT TO PAY $10 FOR A T-SHIRT THEREBUT THE T-SHIRT IS ACTUALLY $15

WILL I BUY THE T-SHIRT?

NO I WON’T– WHY NOT?

ELASTIC vs. INELASTICWANTS: LUXURY GOODS NEEDS: NECESSITIES

LESS LIKELY TO BUY THESE GOODS IF THE PRICE IS HIGH

BUT IF PRICE DROPS….MAYBE WE’LL BUY

WILL BUY THESE GOODS EVEN IF PRICE CHANGES – BECAUSE WE NEED THEM!

FACTORS OF ELASTICITY UNLESS THERE ARE SUBSTITUTES for

particular goods or services, we identify goods as ELASTIC or INELASTIC

WHEN a GOOD or SERVICE has no SUBSTITUTE – it becomes INELASTIC

ANOTHER WAY TO LOOK AT IT:CONSIDER ELASTIC AS A CHANGE YOU ARE

RESPONSIVE TOCONSIDER INELASTIC AS A CHANGE YOU ARE

IRRESPONSIVE TO

SUPPLY in all of this…..PRICE IS CHANGED BY DEMAND – PRICE DOES NOT CHANGE SUPPLY –

SUPPLY CHANGES PRICE

BOOK SCENARIOTHERE IS AN ECONOMICS BOOK WITH ALL

THE ANSWERS TO YOUR FRIDAY QUIZZESI ONLY HAVE ONE COPY – MY SUPPLY IS LOWHOW MUCH WOULD YOU PAY FOR THE BOOK?

MS. GOOD COMES IN WITH 100 OF THESE BOOKS – HOW MUCH WOULD YOU PAY FOR THE BOOK?

WHAT CHANGES????

WHERE SUPPLY AND DEMAND COLLIDE….WHEN SUPPLY AND DEMAND INTERSECT – WE HAVE MARKET EQUILIBRIUM ALSO KNOWN AS “THE IDEAL PRICE”

REAL WORLD ECO….OPEC – ORGANIZATION FOR

PETROLEUM EXPORTING COUNTRIES RESTRICTS THE SUPPLY OF OIL TO ALLOW THE PRICE TO GO UP