Econ: Demand

cat-sitting-desk Economic Systems Quiz. Paw - Integrity_sm


In a market economy, buyers and sellers set prices. Demand is the amount of something that consumers are willing and able to buy at various prices.

Demand Schedule

Demand does not always stay the same and can be determined by a demand schedule, which shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.


The Law of Demand states that people will buy more of a product at a lower price than they will buy at a higher price, if nothing else changes. Real income, possible substitutes, and diminishing marginal utility help explain the inverse relationship between price and quantity demanded.

Demand Shift

Demand does not always stay the same. There are a number of factors that will cause demand to either increase or decrease. These factors, TOESI, are called the determinants of demand: changes in tastes and preferences, other related goods: substitutes and complementary goods, consumer expectation, changes in population, and changes in income.


A demand curve is the graph that shows the relationship between the price of an item and the quantity demanded. A change in the quantity demanded is a result of a change in price. A change in demand for a particular item shifts the entire demand curve to the left or right.

Econ Homework:
1. Read Chapter 5.2-5.3 pp,76-82

AP Macro: Aggregate Supply

7 AS Curve pic

Aggregate supply shows the relationship between the price level and the quantity of products produced by all firms in the economy.

8 AS  Curve2

In the short run, the aggregate supply curve is horizontal because both input and output prices are fixed. In the short run, the aggregate supply curve is upward sloping because while input prices are fixed, output prices are flexible. The increased profit at higher prices can entice firms to increase production. The long-run aggregate supply curve is vertical, because when both input and output prices are fully flexible, firms will produce at full employment output. Unless otherwise specified, aggregate supply generally refers to the upward-sloping curve.

9 AS Shifters

The aggregate supply curve shifts as a result of changes in input prices, worker productivity, taxes, subsidies, and government regulation. Equilibrium output and equilibrium price are established at the point where aggregate supply equals aggregate demand.

AP Macro Homework:
1. Read 10.3-10.4 pp.192-196


AP Macro: Aggregate Demand

5 AD graph2

Aggregate demand and aggregate supply help to explain how and why real GDP and price levels change in the national economy.

Aggregate demand illustrates the total amount of demand for a country’s products at each price level. The aggregate demand curve slopes downward for three reasons. The real balances effect explains that higher price levels reduce the real value of assets, so households reduce spending. The interest rate effect shows that when higher prices and the resulting demand for money cause interest rates to rise, households and firms are less likely to borrow, reducing spending and investment.

With the foreign purchases effect, an increase in U.S. price levels, compared to foreign price levels, leads Americans and foreigners to buy fewer U.S. products in favor of the now relatively less expensive foreign products. On the other hand, all three effects serve to increase the quantity demanded when price levels fall.

6 AD Shifters

Aggregate demand shifts in response to changes in all four sectors of the economy. Consumer spending can change as a result of changes in consumer wealth, expectations about the economy, household borrowing, and personal taxes. Investment spending changes in response to fluctuations in real interest rates and expected returns on investment, caused by changes in expected business conditions, technology, excess capacity, and business taxes. The government sector affects aggregate demand through changes in spending, and net exports affect aggregate demand as a result of changes in national incomes and exchange rates.

AP Macro Homework:
1. Read 10.1-10.2 pp.188-192


Econ: ZONK! Chapter 3 Review

ZONK-logo4  Chapter 3 Economic systems review


Congrats to the winners.

ZONK Wimmers 02.27.2014
Period 2 – Monkey group
Period 3 – Mongoose group
Period 5 – Orca Group
Period 6 – Penguin Group
Period 7 – Aardvark Group

Economics Homework:
1. Chapter 3 Quiz – Friday 2/28


AP Macro: Multiplier

11 Multiplier

When investment spending changes, real GDP changes by more than the initial change in spending. Because spending by one entity is income to another—and that income is then spent to another—an increase in the initial spending multiplies through the economy, causing a greater increase in national output. The multiplier can be calculated in several ways: 1/MPS or 1/(1–MPC) or Change in Real GDP / Initial Change in Spending. To calculate the effect of a change in spending on real GDP: Change in Real GDP = Multiplier x Initial Change in Spending. The higher the marginal propensity to consume, the higher the multiplier, and the greater the effect of changes in investment spending on real GDP

AP Macro Homework:
1. Read 8.3 pp.158-162


Econ: Economic Systems Review

Studying1     All societies must make choices about what to have and what to give up because resources are always scarce compared to people’s wants. How those choices get made depends on a society’s economic system. Every society is faced with three economic questions:  What goods and services should be produced? How should they be produced? Who should get what is produced? How a society answers those questions depends on its economic goals. These goals include economic freedom, efficiency, equity, growth, security, and stability.

Societies have developed three economic systems to answer these questions. In a traditional economy, decisions are dictated by custom, tradition, and the ways of ancestors. The goals are economic security and stability. In a command economy, a powerful ruler or government makes decisions. The goals are equity and security. In a market economy, decisions are made by the interactions of producers and consumers. The goals are economic freedom and efficiency. Most countries today have a mixed economy, in which both the government and individuals have a voice in economic decisions.

Americans describe their economy as a free enterprise system. This system has seven key characteristics.
• Economic freedom to buy and sell what we want and work where we want
• Competition among firms, which try to attract customers with new and better products
• Equal opportunity to make the best use of our talents, abilities, and education
• Property rights that allow us to buy, own, and sell goods and intellectual property
• Binding contracts, which give us confidence that others will abide by their agreements
• The profit motive, which provides an incentive to work and start new businesses
• Limited government that regulates without controlling individuals, firms, or the market

Circular Flow income and expenditures

The flow of money and goods in a market economy is illustrated in a circular flow model. In the model, there are two kinds of participants: households and firms. A household is made up of a person or of a group of people living together that own the factors of production. A firm is an organization that uses these factors to make and sell goods or services. The model also shows two kinds of markets. One is the product market, in which goods and services are sold by firms and purchased by households. The other is the factor market, in which households sell their land, labor, and capital to firms. Funds are paid to households in the form of rent, wages, interest, or dividends. Households buy products from firms with money that they receive in the factor market. Firms acquire land, labor, and capital from households using money that they receive in the product market. Government enters the flow of money and products through a mixed economy in a number of ways. A government purchases goods and services from firms in the product market. Governments also combine land, labor, and capital to produce and distribute public goods and services. Government collects taxes from both households and firms. It uses some of this money to pay for the goods and services it buys from firms. It may also transfer some money back to households as payment for government benefits.

Economics Homework:
1. Chapter 3 Quiz – Friday 2/28


Econ: Earning a Living

Earning a Living     We participated in a simulation called Earning a Living. The activity helps us understand the relationship among households and business firms. This economic relationship is often said to create a circular flow of economic activity.

In the simulation, households sell to business the resources it must have to produce a product. Households use the income they earned from selling resources to buy from business the goods and services their households requires. These goods and services are called ECONOS.
You can satisfy all your household needs and desires by purchasing ECONOS, which are the products produced by business. Business firms supply to households the goods and services they desire, and to earn a profit in the process.

Economics Homework:
1. Study for Chapter 3 Quiz I – Thursday 2/27