MICROECONOMICSmrgroh.weebly.com/.../econ_-_micro_powerpoint.pdf · Opportunity Cost & Law of Demand As the price of an item goes down, demand goes up; as the price of an item goes

MICROECONOMICS

Demand and Supply through

Market Structures

Microeconomics is the study of…

• Individuals• Households• Businesses• Industries

Microeconomics revolves around two very important concepts:

• Demand• Supply

Demand

• The desire and ability to purchase a good or a service

• Demand represents the consumer’s point of view

You may desire to purchase a…

Scarcity

• A lack of resources • The desire to

purchase the Corvette may be strong, but the ability may not be there due to a scarcity of…

• Trade Off: choosing between two things

• Opportunity Cost: the thing given up in order to attain the other thing

OR

Trade Off

OpportunityCost

&

Law of Demand

As the price of an item goes down, demand goes up; as the price of an item goes up, demand goes down.

EXAMPLE:

If the price of flip flops is $5 per pair, 50 people would go to buy them. If the price went up to $50 per pair, there would only be five people who would buy them.

Demand Curves & Schedules

D50

5

$5 $50

Quantity

Price 5$50

25$25

50$5

QuantityDemanded

Price

25

$25

Curve

Schedule

Supply

• The desire and ability to sell a good or service to people

• Supply represents the producer’s point of view

Law of Supply

As the price of an item goes up, supply goes up; as the price of an item goes down, supply goes down.

EXAMPLE:If the price of flip flops is $5 per pair, 50 peopl e would go to buy them; however, the store might only have 5 pairs on the shelves.

If the price went up to $50 per pair, there would o nly be five people who would buy them; however, the store would want to make a lot of money so they would make sure they ha d 50 pairs on the shelves.

Supply Curves and Schedules

50

25

5

$5 $25 $50

Quantity

Price

S

50$50

25$25

5$5

QuantitySupplied

Price

Benefits of the Price System

• Information• Incentives• Choice• Efficiency• Flexibility

Limitations of the Price System

• Externalities• Public Goods• Instability

Demand and Supply Curves and Schedules

50

25

5

$5 $25 $50

Surplus

Shortage

50$505

25$2525

5$550

QuantitySupplied

PriceQuantityDemanded

D S

Curve Schedule

Qua

ntity

Price

Equilibrium

Government Regulations

and the Price System

• Price Ceilings

D S

Equilibrium

Shortage

Surplus

Price

Ceiling

Price

Floor

$50

$25

$5Q

uant

ity

$5 $25 $50

Price

• Price Floor

Productivity

• The amount of goods and services produced per unit of input

• Productivity has an impact on what producers can supply at various prices

Production Schedule and Curve: Vanilla Mint Cookies

-223813

-524012

-1324511

-725810

-132659

242788

482547

362066

361705

361444

361083

36722

36361

000

Marginal Product

Total ProductLabor Input

Num

ber

of C

ooki

es P

rodu

ced

Labor Input1 2 3 4 5 6 7 8 9 10 11 12 13

300

275

250

225

200

175

150

125

100

75

50

25

Marginal Product and Costs: Vanilla Mint Cookies

-271$3,368$2,868$500-223813

12

11

10

9

8

7

6

5

4

3

2

1

0

Labor Input

240

245

258

265

278

254

206

170

144

108

72

36

0

Total Product

-5

-13

-7

-13

24

48

36

36

36

36

36

36

0

Marginal Product

-90.4$2,826$2,326$500

-52$2,374$1,874$500

-17$1,698$1,198$500

-6.54$1,579$1,079$500

4.38$1,494$994$500

$2.17$1,389$889$500

$3.14$1,285$785$500

$4.03$1,172$672$500

$3.53$1,027$527$500

$7.03$900$400$500

$2.86$753$253$500

$1.39$650$150$500

--$5000$500

MarginalCosts

TotalCosts

VariableCosts

FixedCosts

Market Structures

Four types of competition and market structures:

• Pefect Competition

• Monopolistic Competition

• Oligopoly

• Pure Monopoly

Perfect CompetitionCharacteristics of a market that has perfect competition:

1. Many buyers and sellers

2. All the products are identical

3. There are no price regulations in the market

4. Sellers/Producers can enter and exit the market very easily

Monopolistic Competition

Characteristics of a market that has monopolistic competition:

1. Many buyers and sellers2. Product differentiation is

necessary because the products essentially do the same thing

3. Non-price competition exists because buyers will purchase their favorite product regardless of price

4. Sellers/producers can enter and exit the market easily

Oligopoly

Characteristics of a market that has an oligopoly:

1. There are only a few sellers/producers

2. Products can be identical or very similar

3. The market is very difficult for other producers to enter into

4. Non-price competition exists among buyers of the products

Monopoly

Characteristics of a market that has a monopoly:

1. There is only one seller/producer

2. There is no substitute for the product

3. No other sellers/producers can enter into the market easily

4. The seller/producer has complete control over the price of the product

Four Main Types of

Monopolies

• Natural• Geographic• Technological• Government