ch03 Demand, Supply, and Market Equilibrium.pptVIP

Prepared by: Fernando Quijano Shelly Tefft;;firm An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.;product or output markets The markets in which goods and services are exchanged.;? FIGURE 3.1 The Circular Flow of Economic Activity;labor market The input/factor market in which households supply work for wages to firms that demand labor.;land market The input/factor market in which households supply land or other real property in exchange for rent.;A household’s decision about what quantity of a particular output, or product, to demand depends on a number of factors, including: The price of the product in question. The income available to the household. The household’s amount of accumulated wealth. The prices of other products available to the household. The household’s tastes and preferences. The household’s expectations about future income, wealth, and prices.;quantity demanded The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price.;The most important relationship in individual markets is that between market price and quantity demanded.;demand schedule A table showing how much of a given product a household would be willing to buy at different prices.;TABLE 3.1 Alex’s Demand Schedulefor Gasoline;law of demand The negative relationship between price and quantity demanded: As price rises, quantity demanded decreases; as price falls, quantity demanded increases.;They have a negative slope. They intersect the quantity (X-) axis. They intersect the price (Y-) axis.;income The sum of all a household’s wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure.;normal goods Goods for which demand goes up when income is higher and for which demand goes down when income is lower.;substitutes Goods that can serve as re