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2. What is Economics?
ECONOMICS is the study of how society chooses to
1. employ resources to produce goods and services and
2. distribute them for consumption among various competing
groups and individuals.
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3. Influence of the Free Market System
 In a free-market system, decisions about what to
produce and in what quantities are made by THE
MARKET.
 So, who is THE MARKET….?
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4. The Market
 Buyers (or consumers) who determine demand
 Sellers (or producers) who determine supply
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5. How the Market Works
 CONSUMERS send signals to PRODUCERS about
what to make, how many, and so on through the
mechanism of PRICE.
 PRICE tells producers how much to produce, reducing
the chances of a long-term shortage of goods.
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6. How is Price Determined??
 Prices in a free market are not determined by sellers;
rather multiple buyers and sellers negotiating in the
marketplace determine them.
Price is determined through the economic concepts
of supply and demand.
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7. Let’s look at an example…
It’s a hot summer day. Catherine sees an ice cream shop
on the corner. How might your demand for ice cream
cones change as the price changes?
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8. Catherine’s Demand Schedule
http://jimdzialo.wikispaces.com/Unit+2+Supply+and+Demand
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9. Figure 1 Catherine’s Demand Schedule and Demand Curve
Price of
Ice-Cream Cone
$3.00
2.50
1. A decrease
2.00
in price ...
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
http://jimdzialo.wikispaces.com/Unit+2+Supply+and+Demand 9
Copyright © 2004 South-Western

10. The Relationship between Price and Quantity DemandedThe
o Demand Schedule
The demand schedule is a table that shows the
relationship between the price of the good and the
quantity demanded.
o Demand Curve
The demand curve graphs the relationship between the
price of a good and the quantity demanded.
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