If the economy is the #1 issue in politics, what can the government do to actually affect the economy?

 It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. Adam Smith  Use this quote to explain why some governments practice “laissez-faire economics”

Supply and Demand overview The basic insight underlying the law of supply and demand is that at any given moment a price that is “too high” will leave disappointed would- be sellers with unsold goods, while a price that is “too low” will leave disappointed would-be buyers without the goods they wish to buy.

 A. The Law of Demand The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded.

 The Law of Supply This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

Equilibrium price  At the equilibrium price, the quantity that buyers are willing to purchase exactly equals the quantity the producers are willing to sell. Actions of buyers and sellers naturally tend to move a market towards the equilibrium.

Surplus

Equalibrium

Shortage

 Supply  100$= 10 jerseys  10$= 1 jersey  Demand  90$=6 jerseys  10$=10 jerseys

 Draw the supply and demand curves  What is the equilibrium price ?

 Everyone is willing to buy 2 more jerseys for the exact same price

 Draw the new demand curve  What is the new equilibrium price?  What is the shortage if the price remains the same as it was during in the preseason?

 The people are willing to buy 3 less jerseys than there were during the preseason  What is the new equilibrium price?  What would be the surplus if the price remains the same?

 As the price goes up the Demand for the good goes___________ When the price of the good goes up, do companies want to make more of less of it?

 Sometimes the market equilibrium outcome is perceived by certain groups or individuals to be unfair or unjust. Societal values may dictate that the market outcome be altered. Government can intervene in markets in any number of ways, including the banning of the production and consumption of certain goods and services entirely

 A price ceiling is a legal maximum that can be charged for a good. The ceiling is shown by a horizontal line at the ceiling price which--to be effective--is set below the equilibrium price.

 The figure titled "Price Ceiling" illustrates a ceiling at $2. At a price of $2 quantity demanded is 40 units and quantity supplied is 20 units. The result is a shortage in which quantity demanded exceeds quantity supplied

 A price floor is a legal minimum that can be charged for a good.  To be effective, the floor must be set above the equilibrium price.

 In the figure the floor is set at $4. Quantity demanded is 20 units and quantity supplied is 40 units. The result of the floor is a surplus of 20 units.