Download presentation
Presentation is loading. Please wait.
1
Microeconomics Economics
2
Key Terms Circular flow Resource market Product market Law of Demand
Law of Supply Quantity Demanded Quantity Supplied Equilibrium Determinants of Demand Determinants of Supply Price Ceiling Price Floor Perfect Competition Monopolistic Competition Oligopoly Monopoly Sole Proprietorship Partnership Corporation
3
Lesson 1: Circular Flow
4
Standards SSEMI1 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money. Illustrate a circular flow diagram that includes the product market, the resource (factor) market, households, and firms. Explain the real flow of goods, services, resources, and money between and among households and firms.
5
Key Questions What are the two main sectors of the economy?
What do households need businesses for? What do businesses need households for? What does the Circular Flow Model (CFM) demonstrate? What is the resource, or factor, market? What is the product market?
6
Households and Firms The free market economy is powered by the “household” and the “firm”… Household—a person or group of persons living in the same residence. These are the CONSUMERS. Firm—an organization that uses resources to produce a product, which it sells. Firms are the PRODUCERS.
7
The Factor Market Firms purchase factors of production from households… Land, Labor & Human Capital. This is the factor market— The place where firms purchase land, labor, human capital and physical capital.
8
The Product Market The goods and services that firms produce…
Are sold in the Product Market… And purchased by households… With the money they received from firms in the factor market.
9
Circular Flow Chart
10
Product Markets Goods and Services Circular Flow Chart
11
Land Labor Capital Entrepreneurs
Product Markets Goods and Services Circular Flow Chart Factor Markets Land Labor Capital Entrepreneurs
12
Land Labor Capital Entrepreneurs
Product Markets Goods and Services Circular Flow Chart Business and Factories Factor Markets Land Labor Capital Entrepreneurs
13
Individuals and Households Land Labor Capital Entrepreneurs
Product Markets Goods and Services Circular Flow Chart Business and Factories Individuals and Households Factor Markets Land Labor Capital Entrepreneurs
14
Individuals and Households Land Labor Capital Entrepreneurs
Product Markets Goods and Services Circular Flow Chart Business and Factories Individuals and Households Sell Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
15
Individuals and Households Land Labor Capital Entrepreneurs
Product Markets Goods and Services Circular Flow Chart Business and Factories Individuals and Households Sell Scarce Resources Buy Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
16
Circular Flow Chart Product Markets Goods and Services
Product Markets Goods and Services Circular Flow Chart Provide Goods and Services Business and Factories Individuals and Households Sell Scarce Resources Buy Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
17
Circular Flow Chart Product Markets Goods and Services
Product Markets Goods and Services Circular Flow Chart Provide Goods and Services Buy Goods and Services Business and Factories Individuals and Households Sell Scarce Resources Buy Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
18
Circular Flow Chart Product Markets Goods and Services
Product Markets Goods and Services Circular Flow Chart Provide Goods and Services Buy Goods and Services Business and Factories Individuals and Households Earn Income Sell Scarce Resources Buy Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
19
Circular Flow Chart Product Markets Goods and Services
Product Markets Goods and Services Circular Flow Chart Provide Goods and Services Buy Goods and Services Spend Income Business and Factories Individuals and Households Earn Income Sell Scarce Resources Buy Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
20
Circular Flow Chart Product Markets Goods and Services
Product Markets Goods and Services Circular Flow Chart Provide Goods and Services Buy Goods and Services Receive Revenue Spend Income Business and Factories Individuals and Households Earn Income Sell Scarce Resources Buy Scarce Resources Factor Markets Land Labor Capital Entrepreneurs
21
Circular Flow Chart Product Markets Goods and Services
Goods and Services Factor Markets Land Labor Capital Entrepreneurs Business and Factories Individuals and Households Receive Revenue Provide Goods and Services Spend Income Buy Goods and Services Buy Scarce Resources Pay for Use of Resources Earn Income Sell Scarce Resources Circular Flow Chart
22
Circular Flow of Economic Activity
23
Circular Flow of Economic Activity
24
Lesson 2: supply and demand
25
Standards SSEMI2 Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy. Define the law of supply and the law of demand. Distinguish between supply and quantity supplied, and demand and quantity demanded.
26
Connection to Circular Flow Model
Do individuals supply or demand? Do business supply or demand? Who demands in the product market? Who supplies in the product market?
27
Key Questions What is the difference between a change in demand versus a change in quantity demanded? What is the difference between a change in supply versus a change in quantity supplied? Where do you find the market clearing price? How do buyers impact prices?
28
DEMAND DEFINED What is Demand? What is the Law of Demand?
Demand is the different quantities of goods that consumers are willing and able to buy at different prices. (Ex: Bill Gates is able to purchase a Ferrari, but if he isn’t willing he has NO demand for one) What is the Law of Demand? There is an INVERSE relationship between price and quantity demanded
29
LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls Quantity Demanded Price
30
Example of Demand I am willing to sell several A’s in Honors Economics. How much will you pay? Price Quantity Demanded Demand Schedule
31
Why does the Law of Demand occur?
The law of demand is the result of three separate behavior patterns that overlap: The Substitution effect The Income effect The Law of Diminishing Marginal Utility We will define and explain each…
32
Why does the Law of Demand occur?
1. The Substitution Effect If the price goes up for a product, consumer buy less of that product and more of another substitute product (and vice versa) 2. The Income Effect If the price goes down for a product, the purchasing power increases for consumers - allowing them to purchase more.
33
Why does the Law of Demand occur?
3. Law of Diminishing Marginal Utility U- TIL- IT- Y Utility = Satisfaction We buy goods because we get utility from them The law of diminishing marginal utility states that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit. Discussion Questions: What does this have to do with the Law of Demand? How does this effect the pricing of businesses?
34
Can you see the Law of Diminishing Marginal Utility in Disneyland’s pricing strategy?
Change N/A $54 $33 $15 $10 $5
35
Graphing Demand
36
Let’s draw a new demand curve for cereal…
The Demand Curve A demand curve is a graphical representation of a demand schedule. The demand curve is downward sloping showing the inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis) When reading a demand curve, assume all outside factors, such as income, are held constant. Let’s draw a new demand curve for cereal…
37
GRAPHING DEMAND Draw this large in your notes Demand Schedule
Price of Cereal Draw this large in your notes $5 4 3 2 1 Price Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 o Q Quantity of Cereal
38
GRAPHING DEMAND Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2
Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 38
39
Lesson 3: change in quantity demanded
40
Standards SSEMI3 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money. Identify the determinants (shifters) of demand (e.g., changes in related goods, income, consumer expectations, preferences/tastes, and number of consumers) and illustrate the effects on a supply and demand graph.
41
Key Questions List the non-price determinants (shifters) of demand and define each one. Provide an example of a complementary good. How does the substitution effect impact demand? What impact do changes in consumer income have on demand?
42
Change in Demand What if cereal makes you smarter? Demand Schedule
Price of Cereal $5 4 3 2 1 Price Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 42
43
Change in Demand Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2
Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 43
44
Change in Demand Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2
Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 44
45
Change in Demand Demand Schedule Price of Cereal $5 30 $4 40 $3 50 $2
1 Price Quantity Demanded $5 30 $4 40 $3 50 $2 70 $1 Demand o Q Quantity of Cereal 45
46
Prices didn’t change but people want MORE cereal
Change in Demand Demand Schedule Price of Cereal Increase in Demand Prices didn’t change but people want MORE cereal $5 4 3 2 1 Price Quantity Demanded $5 30 $4 40 $3 50 $2 70 $1 D1 Demand o Q Quantity of Cereal 46
47
Change in Demand What if cereal causes baldness? Demand Schedule
Price of Cereal $5 4 3 2 1 Price Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 47
48
Change in Demand Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2
Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 48
49
Change in Demand Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2
Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 49
50
Change in Demand Demand Schedule Price of Cereal $5 $4 5 $3 20 $2 30
1 Price Quantity Demanded $5 $4 5 $3 20 $2 30 $1 80 60 Demand o Q Quantity of Cereal 50
51
Prices didn’t change but people want LESS cereal
Change in Demand Demand Schedule Price of Cereal $5 4 3 2 1 Decrease in Demand Prices didn’t change but people want LESS cereal Price Quantity Demanded $5 $4 5 $3 20 $2 30 $1 80 60 D2 Demand o Q Quantity of Cereal 51
52
Change in Demand What if the price of MILK goes up? Demand Schedule
Price of Cereal $5 4 3 2 1 Price Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Q Quantity of Cereal 52
53
What Causes a Shift in Demand?
5 Shifters (Determinates) of Demand: Tastes and Preferences Number of Consumers Price of Related Goods Income Future Expectations Changes in PRICE don’t shift the curve. It only causes movement along the curve.
54
Prices of Related Goods
The demand curve for one good can be affected by a change in the price of ANOTHER related good. Substitutes are goods used in place of one another. If the price of one increases, the demand for the other will increase (or vice versa) Ex: If price of Pepsi falls, demand for coke will… 2. Complements are two goods that are bought and used together. If the price of one increase, the demand for the other will fall. (or vice versa) Ex: If price of skis falls, demand for ski boots will...
55
Substitutes 55 55
56
Substitutes 56 56
57
Substitutes 57 57
58
Substitutes 58 58
59
Substitutes 59 59
60
Substitutes 60 60
61
Substitutes 61 61
62
Complements 62 62
63
Income The incomes of consumer change the demand, but how depends on the type of good. Normal Goods As income increases, demand increases As income falls, demand falls Ex: Luxury cars, Sea Food, jewelry, homes 2. Inferior Goods As income increases, demand falls As income falls, demand increases Ex: Top Ramen, used cars, used clothes, Spam-Inferior Yachts- Normal Off Brand Cereal-Inferior McDonald’s-Inferior Toilet Paper- Probably no connection to income (The point-some products are very reliant on income and others are not)
64
Inferior Goods 64 64
65
Change in Qd vs. Change in Demand
There are two ways to increase quantity from 10 to 20 Price of Cereal P A to B is a change in quantity demand (due to a change in price) A to C is a change in demand (shift in the curve) A C $3 $2 B D2 D1 o Q Cereal Quantity of Cereal
66
Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Increase or Decrease Left or Right 1 2 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease.
67
Hamburgers (a normal good)
Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease Hamburgers (a normal good) Population boom Incomes fall due to recession Price for Carne Asada burritos falls to $1 Price increases to $5 for hamburgers New health craze- “No ground beef” Hamburger restaurants announce that they will significantly increase prices NEXT month Government heavily taxes shake and fries causes their prices to quadruple. Restaurants lower price of burgers to $.50 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 67 67
68
Lesson 4: supply and demand
69
Standards SSEMI3 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money. Identify the determinants (shifters) of supply (e.g., changes in costs of productive resources, government regulations, number of sellers, producer expectations, technology, and education) and illustrate the effects on a supply and demand graph.
70
Key Questions List the non-price determinants (shifters) of supply and define each one. What impact does input costs have on supply of a good/service? What impact does government regulation and taxes have on supply of a good/service? How do technology investments increase supply?
71
Supply Defined EXAMPLE: Mowing Lawns
What is supply? Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices. What is the Law of Supply? There is a DIRECT (or positive) relationship between price and quantity supplied. As price increases, the quantity producers make increases As price falls, the quantity producers make falls. Why? Because, at higher prices profit seeking firms have an incentive to produce more. EXAMPLE: Mowing Lawns
72
Example of Supply You own an lawn mower and you are willing to mow lawns. How many lawns will you mow at these prices? Price per lawn mowed Quantity Supplied Supply Schedule $1 $5 $20 $50 $100 $1000 72
73
GRAPHING SUPPLY Draw this large in your notes Supply Schedule
Price of Cereal Draw this large in your notes $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 73
74
GRAPHING SUPPLY Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 74
75
companies start making
GRAPHING SUPPLY Supply Schedule What if new companies start making cereal? Price of Cereal Supply $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 75
76
Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 76
77
Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 77
78
Change in Supply Supply Schedule Price of Cereal Supply $5 70 $4 60 $3
2 1 Price Quantity Supplied $5 70 $4 60 $3 50 $2 40 $1 10 30 o Q Quantity of Cereal 78
79
Prices didn’t change but there is MORE cereal produced
Change in Supply Supply Schedule Price of Cereal Supply S2 $5 4 3 2 1 Price Quantity Supplied $5 70 $4 60 $3 50 $2 40 $1 10 30 Increase in Supply Prices didn’t change but there is MORE cereal produced o Q Quantity of Cereal 79
80
destroys corn and wheat
Change in Supply Supply Schedule What if a drought destroys corn and wheat crops? Price of Cereal Supply $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 80
81
Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 81
82
Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 82
83
Change in Supply Supply Schedule Price of Cereal Supply $5 30 $4 20 $3
1 Price Quantity Supplied $5 30 $4 20 $3 10 $2 1 $1 10 0 o Q Quantity of Cereal 83
84
Prices didn’t change but there is LESS cereal produced
Change in Supply Supply Schedule Price of Cereal Supply S2 $5 4 3 2 1 Price Quantity Supplied $5 30 $4 20 $3 10 $2 1 $1 10 0 Decrease in Supply Prices didn’t change but there is LESS cereal produced o Q Quantity of Cereal 84
85
What if cereal companies find a quicker way to make
Change in Supply Supply Schedule What if cereal companies find a quicker way to make cereal? Price of Cereal Supply $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 85
86
6 Shifters (Determinants) of Supply
Cost of resources Number of Sellers Technology Government regulation: Taxes & Subsidies 5. Education 6. Producer expectation Changes in PRICE don’t shift the curve. It only causes movement along the curve.
87
Supply Practice First, identify the determinant (shifter) then decide if supply will increase or decrease Shifter Increase or Decrease Left or Right 1 2 3 4 5 6 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 87 87
88
Supply Practice Hamburgers Mad cow disease kills 20% of cows
Which determinant (SHIFTER)? Increase or decrease? Which direction will curve shift? Hamburgers Mad cow disease kills 20% of cows Price of hamburgers increase 30% Government taxes burger producers Restaurants owners train their employees in better methods of hamburger flipping. New bun baking technology cuts production time in half Minimum wage increases to $20 Decrease in availability of resources, decrease. Price doesn’t shift curve, no shift. Government action, decrease. Opportunity cost of alternative production, decrease. Technology, increase. Price of resources, decrease.
89
Lesson 5: Equilibrium
90
Standards SSEMI2 Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy. Describe the role of buyers and sellers in determining market clearing price (i.e. equilibrium). Illustrate on a graph how supply and demand determine equilibrium price and quantity.
91
Review Explain the Law of Demand Explain the Law of Supply
Identify the 5 shifters of demand Identify the 6 shifters of supply Identify 10 stores in the mall
92
Putting Supply and Demand Together!!!
93
Supply and Demand are put together to determine equilibrium price and equilibrium quantity
Supply Schedule Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 D o Q 93
94
Equilibrium Price = $3 (Qd=Qs) Equilibrium Quantity is 30
Supply and Demand are put together to determine equilibrium price and equilibrium quantity P Supply Schedule Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 Equilibrium Price = $3 (Qd=Qs) D o Q Equilibrium Quantity is 30 94
95
What if the price increases to $4?
Supply and Demand are put together to determine equilibrium price and equilibrium quantity What if the price increases to $4? P Supply Schedule Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 D o Q 95
96
How much is the surplus at $4?
At $4, there is disequilibrium. The quantity demanded is less than quantity supplied. P Supply Schedule Demand Schedule S $5 4 3 2 1 Surplus (Qd<Qs) P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 How much is the surplus at $4? Answer: 20 D o Q 96
97
How much is the surplus if the price is $5?
What if the price decreases to $2? P Supply Schedule Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 Answer: 40 D o Q 97
98
How much is the shortage at $2?
At $2, there is disequilibrium. The quantity demanded is greater than quantity supplied. P Supply Schedule Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 How much is the shortage at $2? Answer: 30 Shortage (Qd>Qs) D o Q 98
99
How much is the shortage if the price is $1?
Supply Schedule Demand Schedule S $5 4 3 2 1 P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 Answer: 70 D o Q 99
100
The FREE MARKET system automatically pushes the price toward equilibrium.
Supply Schedule Demand Schedule S $5 4 3 2 1 When there is a surplus, producers lower prices P Qd $5 10 $4 20 $3 30 $2 50 $1 80 P Qs $5 50 $4 40 $3 30 $2 20 $1 10 When there is a shortage, producers raise prices D o Q 100
101
Shifting Supply and Demand
102
Assume shifts in supply or demand change equilibrium P and Q instantaneously
102
103
Supply and Demand Analysis
Easy as 1, 2, 3 Before the change: Draw supply and demand Label original equilibrium price and quantity The change: Did it affect supply or demand first? Which determinant caused the shift? Draw increase or decrease After change: Label new equilibrium? What happens to Price? (increase or decrease) What happens to Quantity? (increase or decrease) Let’s Practice!
104
S&D Analysis Practice Analyze Hamburgers
Before Change (Draw equilibrium) The Change (S or D, Identify Shifter) After Change (Price and Quantity After) Analyze Hamburgers Price of sushi (a substitute) increases New grilling technology cuts production time in half Price of burgers falls from $3 to $1. Price for ground beef triples Human fingers found in multiple burger restaurants. 1. Demand Increases 2. Supply Increases 3. No Shift. Shortage 4. Supply Decreases 5. Demand Decreases
105
Pearl Exchange Activity
105
106
Voluntary Exchange Activity
106
107
Lesson 6: Price floors and ceilings
108
Standards SSEMI3 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money. Explain and illustrate on a graph how prices set too high (e.g., price floors) create surpluses, and prices set too low (e.g., price ceilings) create shortages.
109
Key Questions What is a government price floor?
What is a government price ceiling? What is the result of a price floor? What is the result of a price ceiling?
110
Government Involvement
#1-Price Controls: Floors and Ceilings #2-Subsidies #3-Taxes
111
#1-PRICE CONTROLS Who likes the idea of having a price ceiling on gas so prices will never go over $1 per gallon?
112
Price Ceiling= Shortage Disequilibrium
Pc- Central Authority sets a Price Ceiling below the Equilibrium Price (Pe). Quantity Supplied (Qs) is less than Quantity Demanded (Qd) causing a shortage. To Calculate a Shortage: Quantity Supplied minus Quantity Demanded
113
To have an effect, a price ceiling must be below equilibrium
Maximum legal price a seller can charge for a product. Goal: Make affordable by keeping price from reaching Eq. To have an effect, a price ceiling must be below equilibrium P Gasoline S $5 4 3 2 1 Does this policy help consumers? Result: BLACK MARKETS Price Ceiling Shortage (Qd>Qs) D o Q 113
114
Price Floor= Surplus Disequilibrium
Pf- Central Authority sets a Price Floor above the Equilibrium Price (Pe). Quantity Supplied (Qs) is greater than Quantity Demanded (Qd) causing a surplus. To Calculate a Surplus: Quantity Supplied minus Quantity Demanded
115
To have an effect, a price floor must be above equilibrium
Minimum legal price a seller can sell a product. Goal: Keep price high by keeping price from falling to Eq. To have an effect, a price floor must be above equilibrium P Corn S $ 4 3 2 1 Surplus (Qd<Qs) Price Floor Does this policy help corn producers? D o Q 115
116
Practice Questions 1. Which of the following will occur if a legal price floor is placed on a good below its free market equilibrium? Surpluses will develop Shortages will develop Underground markets will develop The equilibrium price will remain the same The quantity sold will increase 2. Which of the following statements about price control is true? A. A price ceiling causes a shortage if the ceiling price is above the equilibrium price B. A price floor causes a surplus if the price floor is below the equilibrium price C. Price ceilings and price floors result in a misallocation of resources D. Price floors above equilibrium cause a shortage Answers: D C
117
Lesson 7: Business types and market structures
118
Standards SSEMI3 Explain the organization and role of business and analyze the four types of market structures in the U.S. economy. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation with regards to number of owners, liability, lifespan, decision making, and taxation. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure (perfect) competition with regards to number of sellers, barriers to entry, price control, and product differentiation.
119
Key Questions What are the four market structures in a mixed- market economy? Who has the most control over the price of their product, and why? What is an example of an oligopoly? What is an example of monopolistic competition? What are the three types of business?
120
Business Organizations
Partnership Sole Proprietorship Both
121
Business Organizations
Sole Proprietorship Partnership Both Pride of Ownership Unlimited Liability Lower Taxes Limited Life Quicker Decision Making One Owner: Retains All Profit Easiest and Least Expensive to Start Difficult to Raise Money More Management Expertise-Specialization Decision Making Requires Consensus Multiple Owners: Shares Profit Greater Access to Financial Capital (Money)
122
Market Structures Monopolistic Competition Perfect Competition
Least Competitive Most Competitive Monopolistic Competition Perfect Competition Monopoly Oligopoly Examples: Automobiles Telecommunications Breakfast Cereals Airlines Utilities- Water & Electricity Agriculture Restaurants Hotels Hair Salons
123
Market Structures
124
Market Structures
Similar presentations
