M1L3

Two factors that the markets predict?

-price people willing to pay
-Quantity Supplied

Money formula

way to balance your personal budget to become financial stable- 50% needs, 30% wants, and 20% savings and investment plans

Discretionary:

non-essential expenses like home decor, entertainment, recreation, travel

Non-Discretionary:

necessary goods and services including housing, healthcare, food, clothing, and transportation.

5 major Determinants of Consumer Spending

1. Disposable Income
2. Income per Capita
3. Income Inequality
4. Household debt
5. Consumer Expectations

What is Equilibrium?

is when quantity
supplied and quantity
demanded are equal
Perfect Model for Business!!!!
Prices become stable
• Many companies strive to
reach economic equilibrium

What is Excess Supply?

is when the supplied exceeds quantity demanded at a given price. also known as surplus
-When this happens, prices tend to
fall until equilibrium is restored
• Little re-sale value
• Lack of consumer interest
• Worthlessness- company makes less
profit so cut amount make in future
• Companies put G&S on sale-
increases demand

Factors that Cause Excess Supply?

Price of product too high so people will not
buy it
Cost of Production low so company making
lots of product to make profits
Natural Conditions like pandemic so people
are not buying anything- laid off, purchasing
other things
Technology- more efficient machinery to
make the product
Transport Conditions- make it easier to get
product to market to be purchased by the
consumer
Government's Polices allow companies to
make the product- lower excise taxes
Prices of Related Goods may be too high so
people are not purchasing product/ low so
people are buying substitute products

What Causes Excess Demand?

is when the
quantity demanded exceeds the
quantity supplied at a given price
- Also know as a "shortage"- can't
get the things we want or need
• When this happens, price tends
to rise until equilibrium is
restored
- Black markets
- Rationing
- Violence
- Higher prices

Reasons for Excess Demand?

Rise in the Propensity of people to consume
resources- American wants
Reduction in taxes so people have more
money to buy goods and services
Increase in Government Expenditures-
government purchasing goods and services
Increase in Investments- people are making
interest off investments so have more money
to purchase goods and services
Fall in Imports- increase in prices of
international products Americans have to
purchase goods only produced in the USA
Rise in Exports- businesses are flourishing
and sending goods and services overseas

PIG TOES AND POINT FACTORS

Law of Supply and Demand

a theory that explains the
interaction between the sellers
of a resource and the buyers for
that resource. The theory defines
the relationship between the
price of a given good or product
and the willingness of people
to either buy or sell it.
The law of demand says that at higher prices, buyers will demand less of an economic good. The law of supply says that at higher prices, sellers will supply more of an economic good. These two laws interact to determine the actual market prices and volume of goods that are traded on a market. Market determines price and quantity

"P.I.G. T.O.E.S" (Supply factors)

P roductivity(workers,
machines, and/or assembly)
I nputs (Change in the price of
materials needed to make the
good-raw materials)
G overnment Actions
(Subsidies, Taxes, and
Regulations)
T echnology (Improvements in
machines and production)
O utputs (Price changes in other
products)
E xpectations (outlook of the
future)
S ize of Industry (Number of
companies or competitors in the
market)

"P.O.I.N.T." (Demand factors)

P rice of other goods
(substitute or complementary)
O utlook of consumer
Expectations for the future- if
consumer thinks price will
increase or decrease impacts if
will buy
I ncome of Buyers (normal
goods versus inferior goods)
N umber of potential
customers (population of the
market)
T aste of Consumers(fads or trends)

Quantity and Quantity Supplied:

quantity is how much a supplier is
willing to offer for sale; quantity
supplied is the amount the company is
willing and able to produce and offer for
sale at a given price
•A supply curve shifts whenever a factor
that affects the supply of the good
(other than price) changes

Quantity vs Quantity Demanded:

quantity denotes a person's willingness to buy; quantity demanded represents the amount of an economic good that is desired a fixed price
•A demand curve shifts whenever a factor that affects the demand of the good (other than price) changes

Market Models

Equilibrium: when quantity supplied, and quantity demanded are equal Perfect model for businesses to become stable Excess Supply: when the supplied exceeds quantity demanded at a given price. Prices will fall until equilibrium is restored. Creates a surplus Excess Demand: when the quantity demanded exceeds the quantity supplied at a given price. Prices will rise until equilibrium is restored. Creates a shortage

The Law of Supply asks:

"How much of a good or service is a company willing to produce at a \________ price?"

The Law of Demand asks:

"What is the willingness of consumers to buy a product at \__________ price?"

• Our Xbox factory finds out that our
workers are getting a 25% pay raise
(increase in the cost of labor)...
• What happens to the supply curve?

Decreases

• Our Xbox factory invents a technology that produces twice as many Xboxs in a day as before.
• What happens to the supply curve?

increases

• A neighboring factory that produces Xbox games drops their price as part of a late winter sale...
• What happens to our demand curve?

increase

• A rival company cuts the price of their version of the Xbox, making it half the price of our product.
• What happens to our demand curve?

decrease

Increase in price \=

no shift in the supply curve

• The local paper mill in a small town (where Xbox sales are high) closes, causing many people to lose their jobs.
• What happens to our demand curve?

decrease