Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster1 of 49PowerPoint Lectures for Principles of Macroeconomics, 9eBy Karl E. Case, Ray C. Fair & Sharon M. Oster ; ;CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster2 of 49PART I INTRODUCTION TO ECONOMICS3© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and OsterDemand, Supply, andMarket EquilibriumFernando & Yvonn QuijanoPrepared by:CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster4 of 493PART I INTRODUCTION TO ECONOMICSDemand, Supply, andMarket EquilibriumFirms and Households: The Basic Decision-Making UnitsInput Markets and Output Markets: The Circular FlowDemand in Product/Output MarketsChanges in Quantity Demanded versus Changes in DemandPrice and Quantity Demanded: The Law of DemandOther Determinants of Household DemandShift of Demand versus Movement Along the Demand CurveFrom Household Demand to Market DemandSupply in Product/Output MarketsPrice and Quantity Supplied: The Law of SupplyOther Determinants of SupplyShift of Supply versus Movement Along the Supply CurveFrom Individual Supply to Market SupplyMarket EquilibriumExcess DemandExcess SupplyChanges in EquilibriumDemand and Supply in Product Markets: A Review Looking Ahead: Markets and theAllocation of ResourcesCHAPTER OUTLINECHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster5 of 49Firms and Households: The Basic Decision-Making Unitsfirm An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.entrepreneur A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.households The consuming units in an economy.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster6 of 49Input Markets and Output Markets: The Circular Flowproduct or output markets The markets in which goods and services are exchanged.input or factor markets The markets in which the resources used to produce products are exchanged.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster7 of 49Input Markets and Output Markets: The Circular Flow FIGURE 3.1 The Circular Flow ofEconomic ActivityDiagrams like this one show the circular flow of economic activity, hence the name circular flow diagram. Here goods and services flow clockwise: Labor services supplied by households flow to firms, and goods and services produced by firms flow to households.Payment (usually money) flows in the opposite (counterclockwise) direction: Payment for goods and services flows from households to firms, and payment for labor services flows from firms to households.Note: Color Guide—In Figure 3.1 households are depicted in blue and firms are depicted in red. From now on all diagrams relating to the behavior of households will be blue or shades of blue and all diagrams relating to the behavior of firms will be red or shades of red.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster8 of 49Input Markets and Output Markets: The Circular Flowlabor market The input/factor market in which households supply work for wages to firms that demand labor.capital market The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster9 of 49Input Markets and Output Markets: The Circular Flowland market The input/factor market in which households supply land or other real property in exchange for rent.factors of production The inputs into the production process. Land, labor, and capital are the three key factors of production.Input and output markets are connected through the behavior of both firms and households. Firms determine the quantities and character of outputs produced and the types and quantities of inputs demanded. Households determine the types and quantities of products demanded and the quantities and types of inputs supplied.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster10 of 49Demand in Product/Output MarketsA 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.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case, Fair and Oster11 of 49Demand in Product/Output Marketsquantity 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.CHAPTER 3 Demand, Supply, and Market Equilibrium© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Macroeconomics 9e by Case,