1. Prices (Supply + Demand)

2. Market System People’s self-interest drives the economy Consumers want to minimize their costs (Law of Demand) Producers want to maximize their profits (Law of Supply)

3. Equilibrium Demand and supply are in balance Quantity supplied = Quantity demanded Point at which demand curve crosses supply curve Equilibrium Price Equilibrium Quantity

4. Equilibrium Price Price where quantity demanded equals quantity supplied

5. Equilibrium Quantity Quantity that is both demanded and supplied at equilibrium price

6. Equilibrium S D Peq Price Quantity

7. Shortage Quantity demanded greater than quantity supplied at a certain price Shortage causes price to increase - less is demanded - more is supplied - shortage reduced - prices go back down

8. Surplus Quantity supplied is greater than the quantity demanded at a certain price Surplus causes price to decrease - more is demanded - producers make less - supply is decreased - prices go back up

9. Shortage and Surplus Price Surplus Shortage Quantity S D Eq.

18. Prices Questions If a product is all of a sudden in high demand, what do you think will happen to its price? If a product’s popularity drops significantly, what do you think will happen to its price? If a product is much more available than it used to be, what do you think will happen to its price? If a product is less available to purchase, what do you think will happen to its price?

19. Equilibrium and Demand Changes New equilibrium is achieved when supply curve moves to meet new demand Demand Increase= if supply does not adjust prices rise, quantity exchanged rises Demand Decrease=if supply does not adjust prices fall, quantity exchanged falls

20. Copy the Graph on the Dry-Erase Board Find & label the P eq 1 and the Q eq 1 Label the Demand Line D1 Show an increase in demand (shift in demand) Find the new Peq 2 and Qeq 2 Equilibrium and Demand Changes: Demand Increase

21. Copy the Graph on the Dry-Erase Board Find & label the P eq 1 and the Q eq 1 Label the Demand Line D1 Show a decrease in demand (shift in demand) Find the new Peq 2 and Qeq 2 Equilibrium and Demand Changes:Demand Decrease

22. Copy the Graph on the Dry-Erase Board Find & label the P eq 1 and the Q eq 1 Label the Demand Line D1 Show an increase in supply (shift in supply) Find the new Peq 2 and Qeq 2 Equilibrium and Supply Changes:Supply Increase

23. Equilibrium and Demand Changes:Supply Decrease Copy the Graph on the Dry-Erase Board Find & label the P eq 1 and the Q eq 1 Label the Demand Line D1 Show a decrease in supply (shift in supply) Find the new Peq 2 and Qeq 2

24. Equilibrium and Supply Changes New equilibrium is achieved when demand curve moves to meet new supply Supply Increase=if demand does not adjust prices fall, quantity exchanged rises Supply Decrease=if demand does not adjust prices rise, quantity exchanged falls

25. Draw graphs for each of the following 8 situations and explicitly write what happened to Peq (Increase, Decrease or Indeterminate?). Name each of the graphs the scenario provided 1) Supply: No Change Demand: Increase 2) Supply: Decrease Demand: No Change 3) Demand: No Change Supply: Increase 4) Demand: Decrease Supply: No Change 5) Supply: Increase Demand: Increase 6) Supply: Increase Demand: Decrease 7) Supply: Decrease Demand: Decrease 8) Supply: Decrease Demand: Increase

26. Graph the effects of an increase in the price of gas on UPS

27. Imported Trucks- Cost of Production Eq1 Quantity Price S2 S1 D Eq2

28. Graph the effects of increased purchasing power for teenagers after an increase in the minimum wage

29. Effects of Added Income Eq1 Price S Quantity D1 D2 Eq2

30. Graph the effects of advancements in computers on the architecture industry

31. Computers on Architecture Technology Eq1 Price Quantity D S1 S2 Eq2

32. Laissez Faire What is Laissez Faire? Does the United States Government leave the economy alone? In what ways does the government get involved with the economy?

33. Government Intervention Limit imports- keep prices high Govt. buying agricultural products to increase demand and keep prices high Rent controls Minimum wage

34. Forms of Gov’t Intervention Price Floor Price Ceiling

35. You are an unemployed single parent of two young children living in Los Angeles. You interview at the Los Angeles Times for a position for an assistant in the mail room. I, the interviewer, say that the hourly wage is negotiable and asks you what the lowest hourly wage you would be willing to work for is. What do you say? How did you come up with that number? Imagine the following scenario:

36. Price Floor Gov’t Regulation that establishes a minimum level for prices. It is illegal to charge less than that price

37. Price Floor Example – Minimum Wage Minimum Wage – Wage that the lowest amount an employer legally can pay a worker for a job

38. Agriculture Products - Price Floor Example Agriculture Products Unusually good weather leads to corn farmers being able to produce an unusually large corn crop. What happens to the Price Equilibrium? Suppose that if Farmers sell at this price, they will not be able to cover their costs, many will lose their land. What can be done?

39. Agriculture Products - Price Floor Example Cont’d Gov’t sets a base price for corn that will guarantee farmers a minimum level of income. What will result from this government decision? Government buys the surplus

40. Rent What do you guess is the average monthly rent for a 2 bedroom 1 bathroom apartment in Yorba Linda? Manhattan?

42. Price Ceiling Gov’t regulation that establishes a maximum price for a particular good. Producers cannot charge prices above this set level.

43. Price Ceiling Example – Rent Control Suppose a city gets so popular that many people want to move there. What happens to the price equilibrium?

44. Price Ceiling Example – Rent Control Cont’d Supply and Demand would force a large portion of people living there to move. To prevent this from happening, some cities set a price ceiling on rent

45. Price Ceiling - Consequences Takes away incentive to enter the market and improve the product Creates Shortages