2 - Announcements Chapter 3 Problem Set Due Next Monday,...

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1 06/27/07 Economics 1 Lecture 2 Announcements • Problem Set Due Next Monday, July 2 nd • Midterm 1 is scheduled for July 16 th 06/27/07 Economics 1 Lecture 2 Chapter 3 Demand, Supply, and Market Equilibrium 06/27/07 Economics 1 Lecture 2 Firms and Households: The Basic Decision-Making Units • A firm is an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy. Households are the consuming units in an economy. 06/27/07 Economics 1 Lecture 2 Input Markets and Output Markets: The Circular Flow • The circular flow of economic activity shows how firms and households interact in input and output markets. 06/27/07 Economics 1 Lecture 2 Input Markets and Output Markets: The Circular Flow Product or output markets are the markets in which goods and services are exchanged. Input markets are the markets in which resources—labor, capital, and land—used to produce products, are exchanged. 06/27/07 Economics 1 Lecture 2 Input Markets and Output Markets: The Circular Flow
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2 06/27/07 Economics 1 Lecture 2 Input Markets and Output Markets: The Circular Flow Inputs into the production process are also called factors of production. 06/27/07 Economics 1 Lecture 2 Demand in Product/Output Markets • The price of the product in question. • The income available to the household. • A household’s decision about the quantity of a particular output to demand depends on: 06/27/07 Economics 1 Lecture 2 Demand in Product/Output Markets • The household’s amount of accumulated wealth . • The prices of other products (substitutes and complements) available to the household. • A household’s decision about the quantity of a particular output to demand depends on: 06/27/07 Economics 1 Lecture 2 Demand in Product/Output Markets • The household’s tastes and preferences . • The household’s expectations about future income, wealth, and prices. • A household’s decision about the quantity of a particular output to demand depends on: 06/27/07 Economics 1 Lecture 2 Demand in Product/Output Markets Quantity demanded is the amount of a product that a household is willing and able to buy at a given price (for a specified amount of time). Demand is the relationship between quantity demanded and price 06/27/07 Economics 1 Lecture 2 Changes in Quantity Demanded Versus Changes in Demand • Changes in price affect the quantity demanded per period. • Changes in income, wealth, other prices, tastes, or expectations affect demand .
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3 06/27/07 Economics 1 Lecture 2 Price and Quantity Demanded: The Law of Demand • A demand schedule is a table showing how much of a given product a household would be willing to buy at different prices. PRICE (PER CALL) QUANTITY DEMANDED (CALLS PER MONTH) $ 0 30 0.50 25 3.50 7 7.00 3 10.00 1 15.00 0 ANNA'S DEMAND SCHEDULE FOR TELEPHONE CALLS 06/27/07 Economics 1 Lecture 2 Price and Quantity Demanded: The Law of Demand • The demand curve is a graph illustrating how much of a given product a household would be willing to buy at different prices.
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This note was uploaded on 03/31/2008 for the course ECON 001 taught by Professor N/a during the Summer '07 term at Berkeley.

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2 - Announcements Chapter 3 Problem Set Due Next Monday,...

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