Transcript AP Week 5 - Ector County ISD.

AP Week 5
Supply and Demand
Government involvement
Ceilings and floors, subsidies, min. wage
Monday
• Be able to explain the problems worked over the weekend on
analyzing supply and demand shifters. Be able to explain what
happened to the price and quantity as a review, then be able to
explain government involvement and what a price control is as well as
a subsidy, be able to draw a price ceiling and a price floor.
• Be able to read the information and apply economic thinking to
determine what is happening first, what it will impact (supply or
demand) which way it will shift and the consequences.
• EQ: what is a ceiling? Floor? Price controls? Subsidies?
Unit 2: Supply, Demand, and
Consumer Choice
3
REMEMBER THE STEPS!
4
Government
Involvement
#1-Price Controls: Floors and Ceilings
#2-Import Quotas
#3-Subsidies
#4-Excise Taxes
5
#1-PRICE CONTROLS
Who likes the idea of having a price ceiling on
gas so prices will never go over $1 per gallon?
6
Price Ceiling
Maximum legal price a seller can charge for a product.
Goal: Make affordable by keeping price from reaching Eq.
P
Gasoline
S
$5
Does this
4
policy help
consumers?
3
Result:
BLACK
Price
MARKETS 2
Ceiling
Shortage
1
(Qd>Qs)
D
To have an effect,
a price ceiling must be
below equilibrium
o
10
20
30
40
50
60
70
80
Q
7
Price Floor
Minimum legal price a seller can sell a product.
Goal: Keep price high by keeping price from falling to Eq.
P
Corn
S
$
Surplus
(Qd<Qs)
To have an effect,
Price Floor
a price floor must be
Does this above equilibrium
4
3
policy help
corn
producers?
2
1
o
D
10
20
30
40
50
60
70
80
Q
8
Practice Questions
1. Which of the following will occur if a legal price floor is
placed on a good below its free market equilibrium?
A. Surpluses will develop
B. Shortages will develop
C. Underground markets will develop
D. The equilibrium price will remain the same
E. 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
9
Are Price Controls Good or Bad?
To be “efficient” a market must maximize
consumers and producers surplus
P
S
CS
Pc
PS
D
Qe
10
Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and
producers surplus
P
S
Price
FLOOR
Pc
CS
DEADWEIGHT LOSS
The Lost CS and PS.
PS
INEFFICIENT!
D
Qfloor Qe
11
Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and
producers surplus
P
S
CS
Pc
PS
D
Qe
12
Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and
producers surplus
P
S
Pc
DEADWEIGHT LOSS
The Lost CS and PS.
CS
INEFFICIENT!
Price
CEILING
PS
D
Qceiling Qe
13
#2 Import Quotas
A quota is a limit on number of imports.
The government sets the maximum amount that
can come in the country.
Purpose:
•To protect domestic producers from a
cheaper world price.
•To prevent domestic unemployment
14
International Trade and Quotas
Identify the following:
1. CS with no trade
2. PS with no trade
3. CS if we trade at
world price (PW)
4. PS if we trade at
world price (PW)
5. Amount we import at
world price (PW)
6. If the government sets
This graphs show the domestic
a quota on imports of
supply and demand for grain.
Q4 - Q2, what happens
The letters represent area.
to CS and PS?
#3 Subsidies
The government just gives producers money.
The goal is for them to make more of the goods
that the government thinks are important.
Ex:
•Agriculture (to prevent famine)
•Pharmaceutical Companies
•Environmentally Safe Vehicles
•FAFSA
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Result of Subsidies to Corn Producers
Price of Corn
S
SSubsidy
Price Down
Quantity Up
Everyone
Wins, Right?
Pe
P1
D
o
Qe Q1
Q
Quantity of Corn
18
19
#4 Excise Taxes
Excise Tax = A per unit tax on producers
For every unit made, the producer must pay $
NOT a Lump Sum (one time only)Tax
The goal is for them to make less of the goods that
the government deems dangerous or unwanted.
Ex:
•Cigarettes “sin tax”
•Alcohol “sin tax”
•Tariffs on imported goods
•Environmentally Unsafe Products
•Etc.
20
Excise Taxes
Supply
Schedule
P
Qs
$5
140
$4
120
Government sets a $2 per
unit
tax
on
Cigarettes
P
S
$5
4
3
$3
100
$2
80
$1
60
2
1
o
D
40
60
80
100
120
140
Q
21
Excise Taxes
Supply
Schedule
P
Qs
$5 $7
140
$4 $6
120
Government sets a $2 per
unit
tax
on
Cigarettes
P
S
$5
4
3
$3 $5
100
$2 $4
80
$1 $3
60
2
1
o
D
40
60
80
100
120
140
Q
22
Excise Taxes
Supply
Schedule
P
Qs
$5 $7
140
$4 $6
120
P
S
$5
4
Tax is the vertical
distance between
supply curves
3
$3 $5
100
$2 $4
80
$1 $3
60
STax
2
1
o
D
40
60
80
100
120
140
Q
23
Tuesday
• Objective: Students will demonstrate the ability to calculate the seller
and consumer surplus or shortage.
• Objective: Students will be able to listen and apply math to trade
transactions and then calculate the difference.
• Materials- the Pearl worksheets, pearls
EQ: What is the consumer/supplier surplus? What increased?
Decreased? What happened to price and quantity? What role did
competition play?
Free market
• We voluntarily buy and sell
• Where does the numbers come from?
• Buyers and sellers have a number that they are willing to pay/sell for
• Where does that number come from?
Consumer surplus you were willing to pay 50.00 for a pair of jeans-on sale for
30. What is your consumer surplus
Produce surplus car dealer wants 25,000 the bottom dollar it will sell for (min.)
but the buyer pays ticket price of 30,000. What is the producer surplus.
We are going to analyze this in action on the sell of a cell phone.
$20.00
•
producer surplus
$300.00
sell price
consumer surplus
• Negotiations
• What does it look like?
• Sound like?
• Students want more interactive activities for learning.
• Teachers fear that you will not take the activity serious and learn.
• I agree to do more activates, if you agree to learn and engage.
• Do we have a deal?
• Shake hands and agree to learn
• Introduce interactive cooperative activity “Pearls”
• Students will interact with one another as half the class is the buyer
and the other half is the seller. They will switch off 2 times today and
will fill out the computations between each round with their shoulder
partners.
• Students will be able to determine what the average price was on the
pearl, determine equilibrium, see what negotiations is about and
what happens to negotiations over time.
Tuesday in closing
• Students will demonstrate the ability to calculate the seller and
consumer surplus or shortage.
• Students will be able to listen and apply math to trade transactions
and then calculate the difference.
• Materials- the Pearl worksheets, pearls
EQ: What is the consumer/supplier surplus?
On a sticky note write down 1 thing you learned today and 1 thing that
was confusing (that I can tweek in the activity) Rate 1- horrible, never
do this activity again to a 5- awesome keep them coming.
Notes for Pearl Activity
In a free market buyers and sellers come together to seek mutual benefit. Both parties need to walk away feeling good about the transaction.
Start out: Say that you go to buy a new car at 20k, where does that price come from- your income, budget
Where does the sellers bottom line come from what did they have to make a profit?
What you are willing to pay for an item and what you actually paid for it are not always the same you pay less and you have a consumer surplus
And what the supplier wanted and accepted are not the same, so producer surplus
Define those two concepts
2 volunteers come up to sell a cell phone,
The seller has no clue what the max. the buyer would pay nor does the buyer know how low the supplier will go down.
Give each the max. and min. don’t show it to anyone else and let them negotiate
Debrief with the class, what did they see
Calculate consumer and producer surplus buyer max 300 seller min 20.
Sell price
Seller Min
Buyer Max
Have them figure the surplus
Who won? Both
Discuss the negotiation skillsThat you were looking for this, found one like it cheaper
Look at the benefits, point out the perks
Now I am going to divide the class into buyers and sellers, you discuss with your partner good negotiating methods for both the buyer and the supplier.
Hand out pearls to ½ the students, if it is an odd number 1 person can keep track of the selling price on the board.
Sellers at front, buyers at back, get them pumped. Show them privately the min. and max. for their team
20. 130. Every round it stays the same
Have them sell. Call off 10 count down for last min. then get the averageIf any went under or over, remind them that they would have been fired for going over the min. max
Analyze the numbers- get feedback from students- most likely all over the place, and the average should be high
Put them in the room front and back
Give them same min and max
Have them go over the sell price numbers- what do you see--- should be closer, not all over the place If the number stayed the same for several day, it would reach equilibrium
So after round 2 we can assume that it is equilibrium
point out the min and max stayed the same
Wednesday- test tomorrow over all the
materials we have covered thus far
• Students will review what the equilibrium price was and now
determine what happens when the supply of pearls is lowered and
the buyers increases. They will also see what happens when a
substitute product is introduced to the market.
• Students will negotiate in buying and selling the Pearls. They will
discuss as a class and calculate the surplus/shortage and their points.
• They will answer the questions on the handout. Some in class
discussion and some on their own.
Pearl Activity
Objective: you will practice negotiation skills, make predictions in the changes in the market and you will demonstrate active learning in cooperative learning.
Buying and selling of pearls will take place in Room 621. Your goal is to get as much consumer and producer surplus as possible. In each round you will change from
being a buyer to a seller and vice versa.
There will be 4 trading sessions.
You can only buy or sell one time in each session- no reselling, once you make your purchase sit down, seller come tell me the selling price and then sit down.
On this sheet you will enter the surplus you made. I will record all the sell price on the board to get the average sell price.
Scratch out the sample round- those are not your numbers. (don’t put those in the total score)
Practice round with cell phone- calculate the consumer and seller surplus and enter it in the table below. Sample round: Buyer max is 500 sell price is 200. What is
the surplus?
Discussion
Round 1: What was your surplus. If you did not buy or did not sell you will enter the entire min/max as a loss. ( )
Round 2- the pearls are now in the hands of the buyers so they are the sellers and buyers
Rule you cannot sell or buy from same person
calculate your surplus and enter it into the table below
See what average isRound
Seller Min Buyer Max You sold/bought
Surplus/loss Running Total
Sample
XXXXXXXXXX
1
2
3
4
On back side of the paper see round 3
A mysterious virus kills many oysters
1.
What will happen to demand and supply of pearls?
2.
Predict what will happen to price and quantity. Why will this happen?
3.
If the price stays at the original equilibrium which would be greater QD or QS?
4.
What role did competition play? Who competed? How did that affect price?
5.
Use Economic analysis to show what happened. In the space below create the Supply and Demand at
Equilibrium. Show the change after round 3. And
Again after round 4.
1. Before change:
Price ____
Qty _____
2. Changes after round 3
Supply or demand first?
What was the shifter?
Price _____
Qty _____
Up or Down
Up or
Down
3. Changes after round 4
Supply or demand first
What was the shifter
Price ______ up or down
Qty _____ Up or Down
Calculate your surplus for round 3 and 4
to get a total on the front of the page.
Round Seller
S
Pe
D
Qe
Round
1
Buyer
Price
Your
surplus
Running
Total
Thursday
• 50 question AP formatted test
Friday
• Students will practice in collaborative groups to work on FRQ from
past AP test.
• Students will read and discuss the questions and in their small groups
they will model the process for answering the questions.
• EQ: How do I tackle the FRQ?
• Materials: FRQ packets from past AP test that cover the basic
concepts.