1. AP MICROECONOMICS
Mr. Lindquist
Unit #2

2. Double Shifts…
Worksheet from yesterday (discuss and graph)

3. Key Questions What causes Equilibrium Price to shift?
Supply and Demand
What happens if a Supplier in a Perfectly Competitive market charges a price above Equilibrium Price?
Excess Supply = Surplus of goods/services
Below Equilibrium Price?
Excess Demand = Shortage of goods/services

4. Perfect Market Conditions:
Even number of buyers and sellers
Knowledge of the market transactions
Similar products
Buyers and Sellers can freely enter and exit the market place
Consumers and Producers come together and negotiate the price that works for both!

5. Why does Equilibrium Price and Quantity work?
Law of Supply and Law of Demand
MOST EFFICIENT – No Shortage and No Surplus
MOST PROFITABLE
Socially Optimal Amount

6. Steps for identifying changes in price/quantity
Is it a Supply or Demand issue?
An increase or decrease? (More or Less)
Graph the changes and analyze the graph to discover price & quantity changes

7. EXAMPLE
MSU Scientist develops new strain of corn that will increase yields by 15%?
What will happen to Equilibrium Price and Quantity?
Supply or Demand issue
Increase or Decrease
Graph and analyze graph.

8. Short Video Clip https://www.youtube.com/watch?v=RP0j3Lnlazs
Supply and Demand of Indiana Jones

9. Effect of Market Controls on Prices
Definition:
Government intervention into market prices
Price Ceilings:
Setting a legal maximum price by law on “essential” items
BELOW “true” market price
Why?
Meant to help Consumers
Impact?

10. Example
Rent Controls
Pros and Cons?
Food Prices?

11. Effect of Market Controls on Prices
Price Floors
Setting a minimum price by law to support workers/farmers
Above “true” market price
Why?
Meant to help Producers
Impact

12. Example Minimum Agricultural Prices Pros and Cons?
Agricultural Adjustment Act (1933)
FAIR (1996)

13. Key Point: Price Floors and Price Ceilings are artificial prices that result in surpluses and shortages.