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and Demand
Chapter 3
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Goals of
Market Participants
• Limited resources:
– Consumers need to make choices from
available products.
– Producers must choose how to best use
their limited resources.
LO-1
3-4
3-4
Market and Interactions
• Factor Market:
– Any place where factors of production
(land, labor, capital, and
entrepreneurship) are bought and sold.
• Product Market:
– Any place where finished goods and
services (products) are bought and sold.
LO-1
3-7
3-6
Product Market
LO-1
3-8
3-8
Locating Markets
LO-1
3-9
3-9
Dollars and Exchange
LO-1
3-10
3-10
Dollars and Exchange
LO-1
3-11
3-11
Supply and Demand
LO-2
3-12
3-12
Supply and Demand
LO-2
3-13
3-13
Supply and Demand
LO-2
3-14
3-14
Supply and Demand
LO-2
3-15
3-15
Individual Demand
LO-2
3-16
3-16
Demand Schedule
LO-2
3-17
3-17
Demand Curve
3-19
Law of Demand
LO-2
3-19
3-20
Determinants of
Demand
LO-2
3-21
3-22
Shift in Demand
LO-2
3-22
3-23
Shift in Demand
LO-2
3-23
3-24
Figure 3.3
3-25
Movement versus Shifts
LO-2
3-24
3-26
Movement versus Shifts
LO-2
3-25
3-27
Market Demand
LO-2
3-27
3-29
The Use of
Demand Curves
LO-2
3-28
3-30
Market Supply
LO-2
3-30
3-32
Figure 3.5
3-33
Determinants of Supply
• Technology
• Factor (or resource) costs
• Other goods
• Taxes and subsidies
• Expectations
• Number of sellers
LO-2
3-31
3-34
Law of Supply
LO-2
3-32
3-35
Shifts in Supply
LO-2
3-33
3-36
Equilibrium
LO-3
3-34
3-37
Figure 3.6
3-38
Equilibrium Price
LO-3
3-35
3-39
Market Clearing
LO-3
3-36
3-40
Invisible Hand
LO-3
3-37
3-41
Surplus and Shortage
LO-3
3-38
3-42
Market Shortage
LO-3
3-39
3-43
Market Surplus
LO-3
3-40
3-44
Changes in Equilibrium
LO-4
3-42
3-45
Figure 3.7
3-46
Disequilibrium Pricing
• Price Ceiling:
– Upper limit (maximum price) imposed on
the price of a good or service.
• Price Floor:
– Lower limit (minimum price) imposed on
the price of a good or service.
LO-5
3-43
3-47
Price Ceilings
3-49
Price Floors
LO-5
3-45
3-50
Figure 3.9
3-51
Price Floors
LO-5
3-46
3-52
Laissez Faire
LO-5
3-47
3-53
Optimal, Not Perfect