AP Microeconomics Visual Visual 2.2 National Council on Economic Education Determinants of Demand FACTORS THAT SHIFT THE DEMAND CURVE- Change in Demand Change in consumer tastes Change in the number of buyers Change in consumer incomes Change in the prices of complementary and substitute goods Change in consumer expectations

AP Microeconomics Visual National Council on Economic Education Change in Quantity Demanded Movement from one point to another on the demand curve. Cause is an increase or decrease in price. Demand does not change. Demand is the entire curve.

AP Microeconomics Visual National Council on Economic Education Inverse Relationship Price is an obstacle-higher price less product purchased; lower price more product purchased. Sales represent this law of demand. Diminishing Marginal Utility- in a specific time- each buyer will derive less satisfaction from each successive unit. Income Effect-lower price increases purchasing power of buyer’s money-leads to more items purchased. Higher price opposite effect.

AP Microeconomics Visual National Council on Economic Education Substitution Effect Suggests that at a lower price buyers have incentive to substitute what is now a less expensive product for a relatively more expensive one. It is a better deal. Example-decline in price of chicken will increase purchasing power of consumer incomes-therefore we will buy more chicken. The Income Effect.

AP Microeconomics Visual Visual 2.3 National Council on Economic Education Changes in Supply and Quantity Supplied

AP Microeconomics Visual Visual 2.4 National Council on Economic Education Determinants of Supply FACTORS THAT SHIFT THE SUPPLY CURVE-Change in Supply Change in resource prices or input prices Change in technology Change in taxes and subsidies Change in the prices of other goods Change in producer expectations Change in the number of suppliers Any factor that increases the cost of production decreases supply. Any factor that decreases the cost of production increases supply.

AP Microeconomics Visual Visual 2.5 National Council on Economic Education Equilibrium

AP Microeconomics Visual National Council on Economic Education Equilibrium Price where intentions of buyers and sellers match. Price where quantity demanded=quantity supplied. Quantity-the quantity demanded=quantity supplied at the equilibrium price in a competitive market. Equilibrium=no shortage or surplus Competition among buyers and sellers drives price to equilibrium price-it remains there unless it is disturbed by changes in demand or supply (shifts in curves)

AP Microeconomics Visual National Council on Economic Education Surplus Look at text page 55 Quantity Supplied > Quantity Demanded at any price above equilibrium Surplus-the $4 price encourages sellers to offer lots of corn but discourages many consumers from buying it. What does a surpluses do to price? Up or Down

AP Microeconomics Visual National Council on Economic Education Shortage Any price below equilibrium is shortage Quantity demanded>quantity supplied The $2 price discourages sellers from devoting resources to corn and encourages consumers to desire more than what is available. Competition among buyers does what to price? Up or down

AP Microeconomics Visual 2.11 National Council on Economic Education A Price Ceiling

AP Microeconomics Visual National Council on Economic Education Price Ceiling Price ceiling-maximum legal price a seller may charge for a product/service. Any price above this is illegal. Any below is legal. Rationale-enables consumers to obtain some “essential” good or service that they could not afford at equilibrium. Prevents mkt adj where competition bids up price.

AP Microeconomics Visual 2.12 National Council on Economic Education A Price Floor

AP Microeconomics Visual National Council on Economic Education Price Floor Minimum price fixed by government. Price at or above floor is legal. Price below is not. Price floors above equilibrium-when mkt system has not provided sufficient income for certain group of resource suppliers or producers.

AP Microeconomics Visual Visual 2.6 National Council on Economic Education Shifts in Demand and Supply

AP Microeconomics Visual Visual 2.7 National Council on Economic Education Qualities That Affect Elasticity of Demand

AP Microeconomics Visual 2.10 National Council on Economic Education Tax Incidence and Elasticity of Demand The more inelastic the demand for a good, the more the incidence of an excise tax can be shifted to the consumer.

AP Microeconomics Visual Visual 2.8 National Council on Economic Education Elasticity Coefficients

AP Microeconomics Visual Visual 2.9 National Council on Economic Education Summarizing Price Elasticity of Demand

AP Microeconomics Visual National Council on Economic Education Tax Incidence and Elasticity of Demand