Extra Credit

Go online and research a major company (Apple, Starbucks, Netflix, whatever), and answer the following questions:
1.  How is the company attempting to keep its current customers?
2.  What is it doing to attract new consumers?
3. What challenges does the company face?
4. What makes their product stand out from the rest?

Last day to turn in: Feb 27

Price

•          Price–the monetary value of a product as established by supply and demand–is a signal that helps us make our economic decisions.

•          High prices are signals for producers to produce more and for buyers to buy less. 

•          Low prices are signals for producers to produce less and for buyers to buy more.

•          (Law of Supply/Demand)

•          Prices are neutral because they do not favor the buyer or the consumer.  They are the result of competition.

•          Prices are flexible, allowing for the “shocks” of unforeseen events and changes in the market.

•          Prices have no administration costs.

•          Prices are familiar and easily understood.

•          Rationing, or the system where the government decides everyone’s “fair” share, leads to the question of fairness.

•          Price adjustments help a competitive market reach market equilibrium, with fairly equal supply and demand.

•          Surpluses occur when supply exceeds demand.

•          Shortages occur when demand exceeds supply.

•          The equilibrium price is the price at which supply meets demand.

•          A change in price is normally the result of a change in supply, a change in demand, or both

To be competitive, sellers are forced to lower prices, which makes them find ways to keep their costs down.

•          To achieve economic equity and security we often establish PRICE FLOORS and PRICE CEILINGS

•          price ceiling: A maximum amount that can be charged

•          price floor:  A minimum amount that can be charged/paid (ex.  Minimum wage)

•          TO be effective, needs to be above equilibrium

Economics Project # 1 Price/Markets

Goal: To develop a product , production plan, and marketing strategy that can be used to recruit investors.

Step One: Select a Product

In groups, select which product you’re going to produce.

Identify any competing products currently on the market. How will this affect your plan of attack?

Step Two: Development

Your group will need to decide all of the following things:

-what resources are needed to produce the product?

-What is the total cost to produce the product?

-Where are you going to produce the product?

-What are you hoping to charge for the product?

-What is the supply schedule for your product?

Step Three: Marketing

Your group will need to decide all of the following things:

What groups is your product targeting?

What are their demographics?

Age? Income? Interests?

Where are you planning on selling the product?

How are you going to market? What mediums will be most effective given your audience?

Step Four: Final Project

You will turn in:

1. The answers to your production questions, typed.

2. The answers to your marketing questions, typed.

3. A model of your product (small scale; it doesn’t have to work)

4. 3 examples of marketing/advertising that your business is going to use. Examples can include:

a. A television commercial

b. A radio commercial

c. A website

d. A print ad

e. A mock-up of a billboard

f. Or anything else you can think of….

You will be presenting your product, production plan, and marketing plan to the class as if you were trying to get them to invest in your business.

Due Date___________________

Supply

What is Supply?

Supply =  the amount of a product that would be offered for sale at all possible prices in the market

•          Law of Supply  = states that suppliers will normally offer more  as price goes up and less as the price goes down.     (Why?  You can make more selling expensive shirts than you can selling cheaper ones)

•          Quantity supplied:   the # of goods a producer is willing & able to sell at a certain price

•          When the price goes up, producers want to make more goods so they can make more $$; new businesses also want to start because they see the potential for making the big bucks

•          How does this work?  We make “I love Monkey” t-shirts. They cost $8 to make.  If that price doesn’t change, we can make way more profit if we sell our shirts for $20…if we have to cut the price down, we lose profits.  If we have to sell them for less than they cost to make, we lose $$

individual supply curve illustrates how the quantity that a producer will make varies depending on the price that will prevail in the market

it’s created by creating a supply schedule (just like the demand schedule) , then graphing it.

(draw an example:  We make “I love Monkey” tshirts.  I make  100 @$10, 150 @20, 200@30, 205@40, and 300@50.  The Y axis (vertical) is price, X axis (horizontal) is # of goods produced)

market supply curve illustrates the quantities and prices that all producers will offer in the market for any given product or service.   

                Made by adding together all the individual supply curves

 Supply curves always slope UPWARD;  demand curves slope down.

change in quantity supplied - the change in amount offered for sale in response to a change in price.

•          Producers have the freedom, if prices fall too low, to slow or stop production or leave the market completely. 

•          If the price rises, the producer can step up production levels.

change in supply  - when suppliers offer different amounts of products for sale at all possible prices in the market.

•          Factors that can cause a change in supply: 

•          the cost of inputs;

•          productivity levels;

•          technology;

•           taxes or the level of subsidies;

•           expectations;

•           government regulations.

  

Theory of Production

deals with the relationship between the factors of production and the output of goods and services

                -based on the short run

Short run –  a period of time when a producer only has time to change one factor of production(like labor)  (ex.  Monkey Emporium hires 10 new workers)

 Long run - a period of time when a producer has time to change all factors of production  (ex.  Monkey Emporium opens new stores in Sherman Oaks and New York)

The Production Function 

•           describes the relationship between changes in output to different amounts of a single input while others are held constant.

•          Total product is the total output the company produces:

•           a production schedule shows that, as more workers are added, total product rises until the point when hiring more people will hurt business

•          Marginal product is the extra output or change in total product caused by adding one more unit of variable input.

STAGES OF PRODUCTION

Stage One  (increasing returns)

 marginal output increases with each new worker. 

Companies are tempted to hire more workers, which moves them to Stage II.

Stage Two (diminishing returns)

total production keeps growing but the rate of increase is smaller;

each worker is still making a positive contribution to total output, but it is diminishing.

Stage Three  (negative returns)

 marginal product becomes negative,

decreasing total plant output.

Cost, Revenue, and Profit Maximization

Measures of Cost

Fixed costs  - costs a  business has to pay even if it has no output.  These include management salaries, rent, taxes, and depreciation on capital goods.

Variable costs = costs that change when the rate of operation or production changes, including hourly labor, raw materials, freight charges, and electricity.

Total cost is the sum of all fixed costs and all variable costs.

Marginal cost is the extra (variable) costs incurred when a business produces one additional unit of a product.

A self-service gas station is an example of high fixed costs with low variable costs.  The ratio of variable to fixed costs is low.

E-commerce is an example of an industry with low fixed costs.

Measures of Revenue

Total revenue is the number of units sold multiplied by the average price per unit.

Marginal revenue is the extra revenue connected with producing and selling an additional unit of output.

Marginal Analysis -  comparing the extra benefits to the extra costs of a particular decision.

The break-even point is the total output or total product the business needs to sell in order to cover its total costs.

•          Businesses want to find the number of workers and the level of output that generates maximum profits.  The profit-maximizing quantity of output is reached when marginal cost and marginal revenue are equal.

Demand

I. Demand
• The desire, ability, & willingness to buy a product
• How to evaluate:
- Figure out what people want
- Look at competitors & prices
- Study data and give polls/surveys to consumers
- Decide what/how much to sell & for now much

II. Demand Schedule
• List the quantity demanded & prices
- Quantity demanded is the amount of a good

III. Demand Curve
• Visual of the demand schedule
- Always is downward sloping

IV. Law of Demand
• Quantity demanded varies inversely with price
- When price goes up, quantity goes down. When price goes down, quantity goes up.

V. Market Demand
• Individual demand schedules combined
- Looks at market as a whole

VI. Marginal Utility
• Extra Usefulness you get from 1 more

VII. Principle of Diminishing Marginal Utility
• Idea that the extra satisfaction you get goes down the more you get.

Part 2
What Changes Demand?

A. Change in Quantity Demand
• The change in the number of a good based on the change in price
1. Causes
- Income effect: when prices change, your income (ability to buy stuff) does too.
- Substitution: replacement of one good (expensive) with another one (cheaper)

B. Change in Demand
• Shift of the actual curve
• Change in number of goods bought at the same price
A. Causes
1. Consumer income: more money = curve moves right and the demand goes up. Less money = demand goes down, curve moves left
2. Consumer taste: popular/trendy stuff. Demand goes up.
- Old/obsolete/out of popularity. Demand goes down.
3. Substitution: 2 products do the same job. Price goes up, demand for the other goes up.
4. Complements: two products that work together. Price for one goes up, demand for the other goes down.
5. Change in expectation: looking to the future.
6. Change in the number of consumers.