1. Microeconomic Concepts SSEMI1-SSEMI4
Unit II
Microeconomic Concepts
SSEMI1-SSEMI4

2. SSEMI1: Goods, Services, and Money The student will describe how households, businesses, and governments are interdependent and interact through flows of goods, services, and money.

3. a. Illustrate by means of a circular flow diagram, the Product market; the Resource market; the real flow of goods and services between and among businesses, households, and government; and the flow of money.

4. b. Explain the role of money and how it facilitates exchange.

5. Circular Flow Model

6. Two Basic Units of Microecon!

7. Produce Goods and Services
Businesses
Produce Goods and Services

8. Households
Groups of people, such as families, that live together and purchase many goods to be shared by everyone in the group. …ex. Furniture, appliances, and cooking equipment.

9. Government
Provides necessary goods and services that might otherwise not be provided by what the market demands

10. National Defense

11. Maintaining Public Parks

12. Monuments

13. Both businesses and households pay taxes to benefit society.

14. Economics Interdependent
Households, businesses, and governments depend on each other in order for the economy to function smoothly

15. Households: are Labors & Consumers
Businesses: are Producers and Consumers
Government: Produces, Consumes, and provides structure, regulations, law, and order.

16. “Circular Flow of Economic Activity”
The economic flow of MONEY between households, businesses, and governments is the Circular Flow of Econ Activity.

17. Factor/ Resource Market

18. Includes all exchanges that businesses must make in order to produce things, because they involve the four factors of production.
Land****Rent (rent to landlords)
Labor****Wages (Wages to workers)
Entrepreneurship & Capital***Interest on a loan (people who lend them money to operate)

19. Is where producers invest in new capital to increase production.
Employers find the labor necessary to run their businesses

20. Product Market

21. Households spend their money in the product market
Goods that are sold to consumers for final consumption

22. Households buying things that businesses have made creates a flow back to businesses as profits…Businesses use the profit to buy more resources in the factor market, so they can make more products for households to buy!

23. Circular Flow Model

24. Where households are the demanders in the product market and suppliers in the factor market!

25. b. Explain the Role of Money and not it facilitates exchange

26. Bartering to Money
Money as a Medium of exchange: Money can be anything that a buyers and sellers in an economy are wiling to accept for payment.
standard of value: Money allows US to compare the econ. value of different goods and services

27. SSEMI 2: Supply and Demand
The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine production and distribution in a market economy.

28. Define the Law of Supply and Law of Demand
SSEMI2: a
Define the Law of Supply and Law of Demand

29. Demand

30. Demand
The quantity of a product that consumers are willing and able to buy at a certain price

31. Law of Demand
The higher the price of an item the lower the demand for it will be.
As prices rise, quantity demanded decreases.

32. Demand Curve

33. Shows the relationship between price and demand.
Demand Curve shows…
Shows the relationship between price and demand.

34. Supply
Supply is the total quantity of a product that producers are willing to make and sell at a certain price.

35. Law of Supply

36. Law of Supply

37. Law of Supply
A company needs to charge a price high enough to earn a profit. The higher the price a company can charge, the more it is willing to supply.

38. Supply Curve

39. Demonstrates the relationship between price and supply.
Supply Curve shows…
Demonstrates the relationship between price and supply.

40. Law of Supply and Demand
States that supply (What is produced) will be determined by what is demanded (what will consumers buy)

41. SSEMI2: b
Describe the role of Buyers and Sellers in determining Market Clearing Price

42. Clearing Market Price

43. Market Clearing Price…
The Price at which producers are willing to make the same amount of a product that consumers demand
When buyers and sellers interact in a market…the Market clearing price is determined.

44. Equilibrium
When companies develop new products, an equilibrium price and quantity will eventually be determined by the interaction of buyers and sellers.

45. SSEMI2: c
c. Illustrate on a graph how supply and demand determine equilibrium price and quantity.

46. Equilibrium Price

47. Equilibrium Price
Is similar to Market clearing Price in that the Equilibrium price is placed on a chart that combines the supply curve and the demand curve on a graph.

48. Explain how prices serve as incentives in a Market Economy.
SSEMI2: d
Explain how prices serve as incentives in a Market Economy.

49. Lowering prices are an incentive for people to purchase more goods.

50. SSEMI2: Supply and Demand
The student will explain how markets, prices, and competition influence economic behavior.

51. SSEMI2f: Demand Shifters
Identify the determinants (shifters) of demand & illustrate the effects on a demand and supply graph
Changes in related goods
Changes in income
Changes in consumer expectations
Changes in preferences/taste
Changes in the # of consumers

52. Factors that cause Changes
A decease in the price of resources
If the price of an item increases, demand for its substitutes increases.

53. Demand Shifters

54. Illustration of Shifts

55. Factors that will shift the demand curve left or “in”
People buy less at each price!!
Decrease in income
Price of substitute falls
Price of compliment increases
Poor product expectations
Expect price to fall

56. Shift the demand curve right or “out” are exactly the opposite!
People will buy more at each price!!
Increase in income
Price of substitute rises
Price of compliment decreases
Good product expectations
Expect the price to remain the same/increase

57. Demand Curve shifter/mover: (SI=Shift in; SO=shift out; M=mover)
______ 1.) Ford lowers the price of their Escape.
______ 2.) “Frankenstorm” hits and threatens power outages which has what effect on the demand curve for batteries?
______ 3.) What will happen to the demand curve of Kindle Fire if Apple lowers the prices on their iPads?
______ 4.) Mattel lowers the prices of toys for the holiday shopping season.
______ 5.) There is a “health tax” imposed on all soda in GA. What happens to the demand curve for Pepsi products in GA?

58. Demand Curve shifter/mover: (SI=Shift in; SO=shift out; M=mover)
______ 1.) Ford lowers the price of their Escape.
______ 2.) “Frankenstorm” hits and threatens power outages which has what effect on the demand curve for batteries?
______ 3.) What will happen to the demand curve of Kindle Fire if Apple lowers the prices on their iPads?
______ 4.) Mattel lowers the prices of toys for the holiday shopping season.
______ 5.) There is a “health tax” imposed on all soda in GA. What happens to the demand curve for Pepsi products in GA? M SO SI M SI

59. Please put an “S” for substitute or a “C” for complement:
_____ 1.) Walmart’s brand coffee and Folgers
_____ 2.) Coke and Pepsi
_____ 3.) Hammer and nails
_____ 4.) Spaghetti and garlic bread
Demand curves are only dependent on what? __________________
____________________ always goes on the x-axis and ____________________ always goes on the y-axis for supply and demand curves.

60. QUANTITY S S C C PRICE PRICE
Please put an “S” for substitute or a “C” for complement:
_____ 1.) Walmart’s brand coffee and Folgers
_____ 2.) Coke and Pepsi
_____ 3.) Hammer and nails
_____ 4.) Spaghetti and garlic bread
Demand curves are only dependent on what? __________________
____________________ always goes on the x-axis and ____________________ always goes on the y-axis for supply and demand curves. S S C C
PRICE
QUANTITY
PRICE

61. Consumer Taste and Preference
Aeropostale
Cool a few years ago
Not so cool anymore

62. Tastes/Preferences
This slide illustrates how increased popularity of a good causes the Demand Curve to shift to the right. The demand increases at every possible price. People are willing to pay more because it is in style.

63. Market Size The larger the market the more demand.
Before the ad campaign few people knew of the product but after running a tv commercial in a large city more people are aware of the product which causes an increase in demand.

64. Demand and Market Size
An increase in the number of buyers results in an increase in demand. A national ad campaign increases awareness of a product. A decrease in buyers (in red) would result in the curve shifting left.

65. Income Effect
As income increases it generally causes an increase in demand.

66. Income and demand: normal goods
A good is a normal good if an increase in income results in an increase in the demand for the good.

67. Income and demand: substitute goods
A good is an substitute good if an increase in income results in a reduction in the demand for the good. This demand curve is for Spam, when the minimum wage rises more people buy steak instead of Spam resulting in a decreased demand for Spam.

68. Price of Related Goods Substitute Goods
Products that can be used to replace the purchase of similar goods when prices rise.

69. Substitute Goods

70. Change in the price of a substitute good
Price of coffee rises: The rise in coffee prices causes some people to switch to Tea as a substitute, as a result the Demand Curve for Tea shifts to the right.

71. Complementary Goods Complementary goods are goods that are used together such as hot dogs and hot dog buns or paint and paint brushes. When the price of one changes it changes not only the quantity demand for that item but also for its complement. Price of hot dogs rises which causes not only the quantity demanded for hot dogs to decrease but also the demand for hot dog buns to shift to the left.

72. Change in the price of a complementary good
Price of DVDs rises: because the price of DVD’s has risen fewer people are buying DVD players.

73. Consumer Expectations

74. Expectations
A higher expected future price will increase current demand.
A lower expected future price will decrease current demand.
A higher expected future income will increase the demand for all normal goods.
A lower expected future income will reduce the demand for all normal goods.

75. SSEMI2e Identify the determinants (shifters) of supply
Changes in the cost of production (productive resources
Changes in government regulations
Changes in number of sellers
Changes in producer expectations
Changes in technology
Changes in education

76. The Supply Curve
Price
Quantity
Supply P1
Qs1 P2
Qs2
Qs3 P3
An increase in price will cause an INCREASE in Supply.
A decrease in price will cause a DECREASE in Supply.

77. Explaining the Supply decision
The “quantity supplied” is the amount sellers are willing and able to offer for sale at a single price
The change in the price of the good itself causes a movement ALONG the supply curve
Supply curves normally slope upward. Why?
Rising prices act as an incentive for producers to expand output – potential for higher profits
Increased output may lead to higher costs of production

78. An outward shift in the Supply Curve
Price S1 S2 P1
Changes in any of the factors other than price cause a shift in the supply curve
A shift in supply to the left – the amount that producers offer for sale at every price will be less
A shift in supply to the right – the amount producers wish to sell at every price increases Q1 Q2
Quantity

79. An inward shift in the Supply Curve
Price S3 S1 S2 P1 Q3 Q1 Q2
Quantity

80. Causes of shifts in market supply
Changes in cost of productive resources
Wages, raw materials and components, energy, rents, interest rates
Changes in technology & education (important for agricultural supply)
Changes in the number of producers (sellers) in the market
Government Regulations: taxes and subsidies
Changes in the objectives of suppliers in the market
Changes in the prices of substitutes in production
Producer Expectation of future price changes

81. Determinants of Supply

82. Shifts in the Supply curve…
What would cause the supply of butter to rise?
Reduction in costs of producing – e.g. nitrogen fertiliser = more used by farmers = better grass = more milk
Better technology in producing butter
More government subsidies to farmers
Increase in profitability of skimmed milk ….. Because butter and cream products are jointly produced with skimmed milk.
Weather conditions favourable for favorable grass yield.
Pause for mini exercise – cut out strips for you to select!

83. More examples of shifts in supply – Mini exercise 1
What reasons might be given for the supply of potatoes to fall?
For what reasons might the supply of leather rise?
What reasons might be given for the supply of cod to fall?
For what reasons might the number of plumbers grow?
What reasons might be given for the number of teachers to fall?
What reasons might there be for the number of new houses being built rise?

84. An Outward Shift in the Supply Curve
Price S1 S2 P1
Shifts in the supply curve mean that more or less will be supplied onto the market at each price level
Quantity Supplied (Qs)

85. An Inward Shift in the Supply Curve
Price
A decrease in supply means that less is supplied onto the market at each price S3 S1 P1
Quantity Supplied (Qs)

86. b. Explain and illustrate on a graph how:
SSEMI 2g
b. Explain and illustrate on a graph how:
prices are too high creating Price Floors and surpluses.
prices are too low creating Price Ceilings create shortages.

87. Price Floors

88. Is the minimum allowable price…Price Floors lead to surpluses…Surpluses occur when supply exceeds demand…MILK is a prime example!

89. Surplus are noticed on a graph
When the demand is below the equilibrium price…a Surplus occurs.

90. Price Ceiling

91. The Highest price that can be charged for a particular good or service.

92. Shortage
A price below equilibrium results in a shortage of goods. Price Ceiling can lead to a shortage, because the demand maybe high but the supply low.

93. Define price elasticity of demand and supply.
SSEMI2
Define price elasticity of demand and supply.

94. Price Elasticity
The Sensitivity of price to supply and demand and its tendency to fluctuate as supply and demand change is referred to as Price Elasticity.

95. Price is not set
It changes depending on supply and demand.
The more a change in price affects supply and/or demand, the greater a product’s price elasticity.

96. Demand Inelastic
Within limits, people will buy about the same amount of a product no matter what the price especially if there is no substitute… example Bread, Oil, Milk, and Eggs.

97. Demand Elasticity
Depends on the taste of individuals…items that are luxury on the other hand are sensitive to changes in price…think about houses in Cobb County.

98. Is related to changes in prices and quantities
Elasticity
Is related to changes in prices and quantities

99. Business Organizations and
SSEMI3
Business Organizations and
Market Structures

100. SSEMI3 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy.

101. SSEMI3: a
a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.

102. Pgs. 209 – 237 in textbook Business Type Defined AS Advantages
Disadvantages
Sole Proprietorship
Partnership
Corporation

103. Partnership Advantaged
Specialization of the partners

104. Disadvantage of incorporation
Double Taxation

105. Explain the role of profit as an incentive for entrepreneurs.
SSEMI3: b.
Explain the role of profit as an incentive for entrepreneurs.

106. Profit is the incentive for entrepreneurs to take risk because that is why they created their business, to make money.

107. If they didn’t wish to make money, why would they create a business?
If entrepreneurs don’t make their consumers happy, the consumers will not buy their product and they will lose money.
As long as entrepreneurs make a product and the consumer is willing to buy it, their goal of making money is reached.

108. SSEMI3: c
Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

109. Monopoly
– market structure characterized by a single producer; form of imperfect competition

110. Oligopoly
– market structure in which a few large sellers dominate and have the ability to affect the prices in the industry; form of imperfect competition

111. Monopolistic Competition
– market structure having all conditions of pure competition except for identical products; form of imperfect competition

112. Pure Competition –
independent buyers and sellers making informed decisions on products they wish to purchase and sell