Supply and Demand Review

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Improvements in technology reduce the cost of producing

DVD players

Supply

QuantityDVD Player Market

Quantity

How will this effect VCRs?

Demand

Quantity

VCR Player Market

Quantity

How will this effect DVD Disks?

Demand

Quantity

DVD Disk Market

Quantity

How will this effect VCR Tapes?

Demand

Quantity

VCR Tape Market

Quantity

Environmental regulations reduce the number of power plants built

in California

Supply

Quantity

California Electricity Market

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How will this effect electricity produced in other states?

Demand

Quantity

Other States Electricity Market

Quantity

How will this effect natural gas?

Demand

Quantity

Natural Gas Market

Quantity

How will this effect energy-efficient furnaces?

Demand

Quantity

Energy-Efficient Furnace Market

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Assume there is a new 200 percent excise tax on the sale of yachts

Supply

Quantity

Yacht Market

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How will this effect luxury cars?

Demand

Quantity

Luxury Car Market

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How will this effect boat marinas?

Demand

Quantity

Boat Marinas Market

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How will this effect yacht workers?

Demand

Quantity

Yacht Workers Market

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Assume the government imposes a tariff on foreign steel

Supply

Quantity

Foreign Steel Market

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How will this effect steel produced in the United States?

Demand

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U.S. Steel Market

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How will this effect automobiles?

Supply

Quantity

Automobiles Market

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How will this effect auto workers?

Demand

Quantity

Auto Workers Market

#7 Profits direct businesses toward activities that increase wealth.

Why Profits and Losses are our Friend…

People of a nation are better off if their resources produce _____________ __________________________________________

Users of resources are encouraged to undertake productive projects and less productive use of resources are discouraged.

___________________ perform this function.

What is the function of profit and loss in a market economy? ______________ provide rewards to those

who transform resources into something of greater value.

______________ are just as important! They impose discipline on people, businesses and organizations that are not producing valuable goods and services.

___________________________________________

#8 People earn income by helping others.

Households

Demand G&S

$ Firms

Supply G&S

G&SG&S

DemandResourcesLand, Labor, Capital

resources

SupplyResources

ResourceMarket

ProductMarket

Government

Taxes & Resources

Taxes & G & S

G & S & $$

The Circular Flow of Economic Activity

Circular Flow Questions

1. How do individuals and families in households depend on people in businesses?

2. How do businesses depend on households?

3. What is the role of government in the circular flow of economic activity?

_______________________________

Earning Income What do you have to do to earn a high

income?

How do you know that others value the services or goods you provide?

Circular Flow Implications

A change in the system influences the entire system.

________________________________________________________________________________

Income losses by producers will reduce incomes for households.

Income Variation College students are

rewarded for studying. Star athletes and

entertainers are rewarded for their specialized skills.

Entrepreneurs are rewarded for their productive innovations and risk-taking.

Why does Tiger Woods earn more than a nurse?

#9 Production of goods and services people value, not just jobs, provides the source of high living standards.

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. — ADAM SMITH (1776)

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If jobs were the key to high incomes, we could easily create as many as we wanted. All of us could work one day digging holes

and the next day filling them up. We would all be employed, but we would

also be exceedingly poor because such jobs would not generate goods and services that people value.

Broken Window Fallacy

When the government “creates” jobs Government pays for these jobs either

through ___________________________ It crowds out ________________ jobs and

spending. There is nothing like profit and loss that will

direct funding toward productive projects in government. That is, ____________________________________ __________________________________________________________________________________________

Do spending programs create jobs of value?

Politicians and proponents of government spending projects are fond of bragging about the jobs created by their spending programs and they exaggerate program benefits. Agricultural Adjustment Act (AAA) of 1933 2009 “Cash for Clunkers” Program

Jobs of value matter!

It is not simply more jobs that improve our economic well-being but _________________ ____________________________________________________________________

Question for Thought:

When governments become heavily involved in subsidizing and granting favors to some businesses at the expense of others, how will this incentive structure influence the efficiency of resource allocation?

Supply and Demand Review

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