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Eco Chapters 6,7,8
AP Government Summer Assignment
AP Chapters 1,2
AP Chapter 3
AP Chapter 4
AP Chapter 5
AP Chapter 6
AP Chapter 7
AP Chapter 8
AP Chapter 9
AP Chapter 10
AP Chapter 11
AP Chapter 12
AP Chapter 13
AP Chapter 14
AP Chapter 15
AP Chapter 16
U.S. History Chapters 1, 2, 3
U.S. History Chapter 4
U.S. History Chapter 5
U.S. History Chapter 6
U.S. History Chapter 7
U.S. History Chapter 8
U.S. History Chapter 9
U.S. History Chapter 10
U.S. History Chapter 11
U.S. History Chapter 12
U.S. History Chapter 13
U.S. History Chapter 14
U.S. History Chapters 16,17,18
U.S. History Chapters 19,20,21
U.S. History Chapters 22,23
U.S. History Chapters 24,25
U.S. History Chapters 26,27
U.S. History Chapters 28,29,30
U.S. History Chapter 31
U.S. History Chapter 32
U.S. History Chapter 33
US Government Chapters 1,2
US Government Chapter 3
US Government Chapters 10,11,12
US Government Chapters 13,14
US Government Chapter 18
US Govt Chapters 19,20,21
Remembering 9/11/01
The Civil Rights Movement
Economics Chapters 1,2,3
Eco Chapt 9
Eco Chapters 6,7,8
Eco Chapt 13
Eco Chapter 15
Eco Chapt 21


Chapters 6,7,8



                Supply and Demand in the Market Place



Studying small parts of the economy



Chapter 6


Concepts of explaining

The Law of Demand


Important topics to understand


The Income Effect – When the price of a good decreases, the buyers income increases.


There is an incentive to buy more.

(a sale tends to make consumer purchase more) 

  *Rockefeller, Carnegie, Morgan*


Substitution Effect - when a price of an article drops, it tends to sell more and effect related products


*Price of gas drops, related items increase (waxing, washing)



Diminishing Marginal Utility

as you increase marginal utility, there a decrease in worth





One perfect rose

(the only one available for miles)


is worth more to you than a dozen in which you could purchase at the Mobile Mart




Scarcity, Rare, Singular make it worth more to the consumer.


Car enthusiasts covet the

1964 Corvette Stingray (T-Back)roof


They will pay top dollar at a car auction.  (Rare, scarce, singular)




1) Influence Production - how much a company has to produce including quality and competition.


2) Influence Labor - During boom periods and high growth periods are high; benefits are many because of high prices.


3) Influence Rationing,

buying power and production.

Scarce Resources - Higher prices

Less purchasing Power



Demand – refers to the quantities of a good that consumers are willing and able to purchase at various prices during a given time.


Elasticity of Demand

Measuring what the consumers will purchase at different prices


Demand Schedule        

The chart which describes what is being purchased and at what price  


Elastic Demand Schedule-Potatoes/lb.


Price  Quantity Buyers              Revenue

will Buy


$.10                        500                                                  $50.00

 .09                       1,000                                                 90.00

 .08                       1,500                                                 120.00

 .07                       2,000                                                 140.00

 .06                       2,500                                                 150.00

 .05                       3,000                                                 150.00

 (law of increased marginal utility)

(Graphing demand info – Demand Curve)







The Law of Demand


The quantity of a good that people will buy varies inversely with the price of the good. 



The Consumer’s Reaction


Buyers are usually pleased to purchase at a lower price rather than a higher one and probably will purchase more.








Note:          Boutiques, Department Stores, Supermarkets, Specialty Wear

DO NOT publish price increases


Shop Rite’s “can,can” sale

          *5 cans for less* (Overstocking)


Syms,  Men’s World

*published adjusted pricing*

(suits, sport jackets, shirts)


Lord and Taylors

Published pricing

(Original price/Sale 30% off price)

 at the Clearance Rack

(Designer Clothes)



*Also note that

Revenue = price x quantity

In addition you must remember that revenue can increase by raising the prices and selling less goods.



Inelastic Demand - When total revenue from sales decreases with a price decrease and the demand is relatively unresponsive or inelastic 


1) good is a necessity

2) There are no substitute goods

3) Small effect on a budget


Inelastic Demand - Salt



Price                     Bought                                               Revenue


.10                                  500                                                    $50.00


.09                                  540                                                    48.60


.08                                  570                                                    45.60


.07                                  590                                                    41.30


.06                                  600                                                    36.00




Chapter 7


Supply - is the quantity of a good that sellers are ready to sell in a market at a specified price.


From the perspective of the producer


*        The higher they can sell their product, the more they will produce.


Supply Schedule tells the producer what he can sell certain items for and how much he can produce and still make a profit


Price                              Amount                                   Revenue


.10                                           2,500                              $250.00

.09                                           2,000                              180.00

.08                                           1,500                              120.00

.07                                           1,000                              70.00

.06                                             500                         30.00


(Graphing the supply schedule

illuminates the Supply Curve)

Remember!  Sellers react positively to higher prices


The Price Elasticity of Supply

The Ratio of the percentage change in the quantity supplied to the percentage change in the product's price.



Increased Marginal Productivity of the Producer/Seller

Demand dictates the amount produced.


The seller will attempt to produce the most possible at the cheapest cost.  EG. Andrew Carnegie - US Steel

                                                        materials wages/hours


                                                      $5.00 = Price of Steel/lb


                                                       $2.50 = Carnegie profit


                                                     $2.50 = production costs

(including, natural resources, capital, labor, transportation)

Diminishing Marginal Productivity


Margin of profit is not maintained


*production costs are

       eating up profits


EG.  less demand but costs remain



Common Reasons


*Changing Market (different products)

*Slower Rate of Selling

*Rising labor costs




How can you continue to employ workers if the production demands do not warrant the output of their productivity?                                            






                                                                Chapter 8



Where do the consumers

communicate with the producers?



In the Market place,

through the market system.



The consumer will shop and look for sales, constantly.

(the producer is aware of this)



The producer will adjust or reduce prices in order to maintain a level of business

(the consumer is aware of this)






The Law of Supply and Demand



The quantity of a good that buyers want and the quantity that sellers offer their product are brought to a price.



The problems and conditions in the market place(for consumers/producers)



The condition in which demand is greater than supply




*Every parent wants the latest gimmick toy (object)


*they will over spend during the holiday


*Prices will rise, accordingly

(how serious is the shortage)


*attempt to satisfy the wants of the consumer


*are in business for profit


*have to maintain interest in products without discouragement

          (over pricing)



The Surplus

The condition in which supply is greater than demand in the market



          *Everyone has the item

          *the novelty has worn off

          *sense price gouging



          *over stocking and production

*profit projections are effected

*costs/labor/capital costs




Is there a method of stability where consumers and producers can communicate effectively?



Equilibrium Price

the price at which the quantity demand equals the quantity supplied


Reason:                 STABILITY



The Equilibrium Price



The buyers will purchase the least amount of CD's at $16.00 and the most at $4.00


The Seller at $16.00 will make available the most amount of CD's possible and at $4.00 the least available amount.


The Equilibrium Price is $10.00

A Monopoly

Occurs when there is a shifting of the equilibrium price

(various reasons)



Price Floor

the minimum price set by the government that is above the market equilibrium price


When necessary, Farming-Wheat

Preventing price deflation



Price Ceiling

A maximum price set by the government that is below the market equilibrium price.   It cannot go higher


Con Ed       (regulated monopoly)

Preventing price gouging





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