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Pop Quiz #3 1. Does a price ceiling create a shortage or surplus? 2. What is one thing that causes a change in quantity demanded? 3. What is the law of supply? 4. What is the law of demand? 5. Price ceilings are an example of a true free market economy. True or False 6. Price floors are designed to keep prices: high or low? 7. Minimum wage is an example of a price ceiling. True or False Pop Quiz cont… 8.) If I own a business do I want a shift in demand or change in quantity demanded. 9.) Which graph represents supply? 10.) Which graph represents demand? Supply/Demand Review What could have caused this shift? Law of Supply • Sellers will offer more of a good at a higher price and less at a lower price. Equilibrium price Journal • Make a list of the last five goods you purchased and how much they cost. Then list how many of those goods you purchase a year. • At what price would you purchase less and at what price would you purchase more. Elasticity • Measure of responsiveness that shows the impact a change in price will have on demand and supply of an item. • How much can you stretch the price of a product before people buy and suppliers sell less of it. • Demand Elasticity: – Extent to which a change in price causes a change in quantity demanded. • Elastic Demand – A change in price causes a relatively larger change in quantity demanded. • Inelastic Demand – Change in price causes a relatively smaller change in quantity demanded. Inelastic or elastic Demand? Cost per $1 unit $3 $5 $10 Quantity 10 Demand 9 8 7 Inelastic or elastic Demand? Cost per $10 unit $11 $13 $14 Quantity 6 Demand 3 1 .05 Determinant of Demand Elasticity • Can Purchase be delayed? • Are substitutes available? • Is it inexpensive? • Yes = elastic • No = inelastic Estimating the Elasticity of Demand Table Salt Can purchase be delayed? Are substitutes available? Is it inexpensive? Type of Elasticity? Gasoline from Gasoline a certain in General station Insulin Candy Bar Why important? • Elasticity and Profit: – If you own a business it is important to know if you can raise price to increase profits. ****Business is all about profits!! Practice Assignment • Create a table that you can use to determine whether the demand for FIVE goods of your choice are elastic or inelastic. Then report your findings. Product 1 Product 2 Can purchase be delayed? Are substitutes available? Is it inexpensive? Type of Elasticity? Product 3 Product 4 Product 5 Get your Books!! Journal # 7 • Bob’s 5 acre tomato farm employed 100 workers to pick his crop. • Tom’s 5 acre tomato farm employed 200 workers to pick his crop. • Roy’s 5 acre tomato farm employed 500 workers to pick his crop. • Assuming they all pay the same hourly wage and produced the same amount of tomatoes who made the most money? Explain your answer and show how you came to your conclusion. Theory of Production • Deals with the relationship between the factors of production and the output of goods and services. “At what point is more or less input bad?” factors of production: Land, Capital (tools, equipment), labor. Production Function • Illustrated in graphs or schedules on pg 124 in your books. • Input = change in number of workers • Total Product = total amount produced • Marginal Product = change in output because of the increase in input. Three Stages of Production • Stage I: – Increasing returns/marginal product – Each new worker contributes more to total product than the one before her. • Stage II: – Total product grows but marginal product gets smaller. • Stage III: – Total output goes down and marginal product becomes negative. • Stage III = Law of Diminishing Returns • By this time the employer has hired to many workers and the people are starting to get in each others way. • At what stage should employers try to hire the perfect number of workers? What is the optimum number of workers for the business on page 124? Pop Quiz 1.) A product is Elastic when a small price change causes a large change in demand. True or False 2.) Gas in general is an inelastic good. True or False 3.) List the “Factors of Production” 4.) What is the law of Demand? 5.) Businesses want to hire more employees at this stage ______ of production. 6.) Stage ______ of production represents the Law of Diminishing Returns 7.) What is the marginal # of Total Marginal rd Product of the 3 worker? Workers Product Product 1 6 8.) What workers represent Stage 1? 2 14 3 28 9.) What workers represent Stage 3? 4 36 5 39 6 38 7 32 10.) What is the law of supply? 11.) What is demand? 12.) When there is a price floor there is a: a. Shortage b. Surplus 13.) What is the economic definition of scarcity? 14.) The equilibrium price is where the _______ curve and the _______ curve cross. 15.) What is utility?