Chapter3 - Chapter 3 Supply and Demand How do consumers get...

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Unformatted text preview: Chapter 3 Supply and Demand How do consumers get the goods and services they want in the right quantities and qualities? Some goods and services are allocated by the market forces of supply and demand Supply and Demand: An Introduction Why do some goods and services have shortages or surpluses and others do not? Some good and supplies services are regulated by government Supply and Demand: An Introduction Three Problems All Economic Systems Must Address What should be produced? How should it be produced? For whom will it be produced? What, How, and For Whom? Central Planning Versus the Market Centralized Economic Organizations Agrarian society Former Soviet Union Cuba North Korea China Bureaucracy What, How, and For Whom? Central Planning Versus the Market A small number of individuals address: What Establish production targets for factories and farms How Plan how to achieve the goals For Whom Distribute the goods and services produced What, How, and For Whom? Central Planning Versus the Market Free-Market or Capitalist Economic System Individual choices determine: Which careers to pursue Which products to produce or buy When to start and shut-down a business Who gets what is decided by individual preferences and purchasing power What, How, and For Whom? Central Planning Versus the Market Market Consists of all buyers and sellers of a good or service What do you think? What determines the price of pizza, gasoline, a car wash, or other goods and services? Buyers and Sellers In Markets The Demand Curve A schedule or graph that tells us the quantity of a good that buyers wish to buy at each price Buyers and Sellers In Markets A Property of Demand As price of a good or service goes down the quantity consumers wish to buy will increase Therefore, the demand curve is downward- sloping Buyers and Sellers In Markets The Demand Curve Why do buyers purchase a greater quantity at lower prices and vice-versa? The substitution effect The income effect Buyers and Sellers In Markets The Substitution Effect The change in the quantity demanded of a good that results because buyers switch to substitutes when the price of the good changes Buyers and Sellers In Markets The Income Effect The change in the quantity demanded of a good that results because a change in the price of a good changes the buyers purchasing power Buyers and Sellers In Markets The Cost-Benefit Principle The reservation price is the benefit the buyer receives from the good The cost of the good is its market price If the reservation price (benefit) exceeds the market price (cost) the consumer will purchase the good At higher prices, benefit will exceed cost for a smaller quantity than at lower prices Buyers and Sellers In Markets...
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Chapter3 - Chapter 3 Supply and Demand How do consumers get...

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