Transcript price
Take Out Graphing Worksheet From Yesterday ■ Objective: Practice single and double shifts of the supply and demand curve to find the new market equilibrium price. ■ TE Skill: C-5 Demonstrate understanding of concept TEST ON MONDAY Lighting Practice Round ■ Each half of the room is a team ■ Each team will send one member up at a time to the white board ■ They will have one minute to draw the market for each event and show the shift of the curve, as well as the new equilibrium ■ You may support your team member from your seat ■ If one team finishes before the other-they get the point! ■ A different person from each team will come up every time ■ The side that win can earn an extra point if they can correctly name the shifter involved PRICE OF RUBBER INCREASES DRAMATICALLY Athletic Shoe Market MOVIE INCREASES POPULARITY OF ATHLETIC SHOES Athletic Shoe Market PRICE OF SPORTS SANDALS DROPS DRASTICALLY Athletic Shoe Market TWO NEW ATHLETIC SHOE COMPANIES ENTER THE MARKET Athletic Shoe Market CONSUMERS WORRY PRICES OF ATHLETIC SHOES MAY INCREASE NEXT MONTH Athletic Shoe Market INSECTS KILL HALF THE WORLD’S TOMATO CROP Tomato Market RECESSION HITSMANY CONSUMERS LOSE JOBS Movie Ticket Sales Market PRICE OF COMPUTER CHIPS TUMBLES (NEEDED TO MAKE COMPUTERS) Computer Market PRICE OF SALMON SKYROCKETS Sea Bass Market GOVERNMENT PLACES EXCISE TAX ON CIGARETTES TO DISCOURAGE SMOKING Cigarette Market PRICE OF DVD PLAYERS PLUMMETS DVD Market NEW, MORE EFFICIENT ASSEMBLY LINE TECHNOLOGY INTRODUCED Automobile Market MCDONALD’S OPENS UP 3 NEW LOCATIONS Big Mac Market Four Single Shifts ■Memorize 1.Demand , then P 2.Demand , then P 3.Supply , then P 4.Supply , then P , and Q , and Q , and Q , and Q Dual Shifts-When both curves move D S P? Q D S P? Q D S P Q? D S P Q? To Sum Up: ■ If Demand and Supply are moving together (either increasing or decreasing), PRICE will be unknown ■ If Demand and Supply are moving opposite each other, QUANTITY will be unknown *We have unknowns because we do not know by how much the curve is shifting CHANGES IN BOTH SUPPLY AND DEMAND If supply and demand decrease by the same amount, price will be unchanged and the quantity will decrease. CHANGES IN BOTH SUPPLY AND DEMAND If supply decreases less than demand, price will decrease and quantity will decrease. CHANGES IN BOTH SUPPLY AND DEMAND If supply decreases more than demand, price will increase and quantity will decrease. CHANGES IN BOTH SUPPLY AND DEMAND If supply increases and demand decreases, the price will decrease and the quantity will not change. P increase Q same Increase in Demand S1 S1 S0 S1 E1 E1 Pe1 E E 1 Pe D0 0 D1 Qe1 Qe Quantity of Video Games (thousands) Practice ■ Take a worksheet from the front to practice double shifts. There will also be examples of single shifts Government Policies ■ Price controls – Price ceiling: a legal maximum on the price of a good or service. Example: rent control. – Price floor: a legal minimum on the price of a good or service. Example: minimum wage. EXAMPLE 1: The Market for Apartments P Rental price of apts S $800 Eq’m w/o price controls D 300 Q Quantity of apartments How Price Ceilings Affect Market Outcomes A price ceiling above the equilibrium price is not binding – it has no effect on the market outcome. P S Price ceiling $1000 $800 D 300 Q How Price Ceilings Affect Market Outcomes The equilibrium price ($800) is above the ceiling and therefore illegal. The ceiling is a binding constraint on the price, and causes a shortage. P S $800 Price ceiling $500 shortage 250 400 D Q EXAMPLE 2: The Market for Unskilled Labor Wage paid to unskilled workers W S $4 Equilibrium w/o price controls D 500 Quantity of unskilled workers L How Price Floors Affect Market Outcomes A price floor below the equilibrium price is not binding – it has no effect on the market outcome. W S $4 Price floor $3 D 500 L How Price Floors Affect Market Outcomes The equilibrium wage W ($4) is below the floor $5 and therefore illegal. The floor is a binding constraint on the wage, and causes a surplus (i.e., unemployment). labor surplus S Price floor $4 D 400 550 L Price floors & ceilings P 140 Determine effects of: A. B. C. 130 The market for hotel rooms S 120 110 $90 price ceiling 100 $90 price floor 80 $120 price floor 60 90 D 70 50 40 0 Q 50 60 70 80 90 100 110 120 130 38 A. $90 price ceiling P 140 The price falls to $90. 130 Buyers demand 120 rooms, sellers supply 90, leaving a shortage. 110 The market for hotel rooms S 120 100 90 80 Price ceiling shortage = 30 D 70 60 50 40 0 Q 50 60 70 80 90 100 110 120 130 39 B. $90 price floor Eq’m price is above the floor, so floor is not binding. P = $100, Q = 100 rooms. P 140 The market for hotel rooms 130 S 120 110 100 90 80 Price floor D 70 60 50 40 0 Q 50 60 70 80 90 100 110 120 130 40 C. $120 price floor The price rises to $120. Buyers demand 60 rooms, sellers supply 120, causing a surplus. P 140 130 120 110 The market for hotel rooms surplus = 60 S Price floor 100 90 80 D 70 60 50 40 0 Q 50 60 70 80 90 100 110 120 130 41 Effects of Price Controls ■ Prices are the signals that guide the allocation of society’s resources. This allocation is altered when policymakers restrict prices. ■ Price controls are often intended to help the poor, but they often hurt more than help them: – The min. wage can cause job losses. – Rent control can reduce the quantity and quality of affordable housing.