Transcript The Market Never Stands Still Lesson 6x

The Market Never Stands Still
Please write down the three questions below. Use the chart on
page 195 to answer. Thanks.
1. According to
the schedule and the graph,
what is the equilibrium price and quantity
demanded in this example?
2. Priced at $19, what is the surplus /
shortage?
3. If there is a shortage of -800, then what
was the price of the DVDs?
SSEMI3 The student will explain how markets, prices,
and competition influence economic behavior.
a. Identify and illustrate on a graph factors that cause
changes in market supply and demand.
b. Explain and illustrate on a graph how price floors
create surpluses and price ceilings create shortages.
c. Define price elasticity of demand and supply.
How can changes in supply and
demand be illustrated?
Determinants of Demand
• Change in consumer income
• Change in tastes and preferences
• Change in the price of a substitute good
• Change in the price of a complementary good
• Change in consumers’ price expectations
• Change in number of consumers in the market
Shifts in Demand
4.00
3.50
Demand price
3.00
2.50
A
2.00
B
1.50
C
1.00
D
E
0.50
F
D1
0.00
10
20
30
40
50
60
D2
70
Quantity of pecans per day
80
Determinants of Demand
(Things that shift the entire line!)
•R elated goods (Complements and Substitutes)
•I ncome –
•P references –
•E xpectations –
•N umber of buyers –
Determinants of Demand (from Cannon)
(Things that shift the entire line!)
•R
•I
•P
•E
•N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for
the other good decreases; if price of the complement
decreases, demand for the other good increases
Determinants of Demand (from Cannon)
(Things that shift the entire line!)
•R
•I
•P
•E
•N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for
the other good decreases; if price of the complement
decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other
good increases; if price of substitute decreases, demand for
other good decreases
Related goods (Complements and
Substitutes)
Determinants of Demand (from Cannon)
(Things that shift the entire line!)
•R
•I ncome – income increases, demand increases; income
decreases, demand decreases
•P
•E
•N
Income – income increases, demand increases; income decreases, demand
decreases
Determinants of Demand (from Cannon)
(Things that shift the entire line!)
•R
•I
•P references – preferences increase, demand increases;
preferences decrease, demand decreases
•E
•N
Preferences – preferences increase, demand increases; preferences decrease,
demand decreases
Determinants of Demand (from Cannon)
(Things that shift the entire line!)
•R
•I
•P
xpectations – expect higher prices in future, current
•E demand increases expect lower prices in future, current
demand decreases
•N
Expectations – expect higher prices in future, current demand
increases expect lower prices in future, current demand decreases
Determinants of Demand (from Cannon)
(Things that shift the entire line!)
•R
•I
•P
•E
•N umber of buyers – # of buyers increase, demand
increases; # of buyers decrease, demand decreases
Number of buyers – # of buyers increase, demand increases; # of buyers
decrease, demand decreases
The demand for a particular good may increase
or decrease due to more or less people in the
market for the good. For example, before the
advent of ecommerce (using the world wide
web to buy and sell), most businesses sold
products to people who lived in their area of
the country or who ordered products from
their mail order catalogs. As people began to
use online shopping in greater numbers, many
businesses with little or no web presence
probably experienced a decline in consumers
of their products due to increased competition
from online businesses while businesses who
quickly and effectively adapted to the
ecommerce model probably saw an increase in
consumers of their products.
IRDL the Turtle!!!!
Increase Right, Decrease Left
Pecan Article
• http://online.wsj.com/news/articles/SB100014240527487040768045
76180774248237738
Pecan statements
1.
2.
3.
4.
5.
6.
7.
8.
Lunar New Year, Chinese love Pecans on New year
Corn syrup, used with pecans to make pecan pie, has risen in price
Price of walnuts increases
Household income increases in China
Price of pecans drops
US trade agreements allow for more pecans to be sold in more
countries
Pecan prices expected to be higher next year
Famous celebrities seen eating pecans at award ceremonies
Exceptional
4 points
Good
3 points
Average
2 points
Below Average
1 point
Title and curve
Title and curve also
showing the change
in supply or change
in demand
Title and curve but
does not show the
Title but no supply
curve or demand
curve
No title
Drawing
A drawing that is an
ample of a
determinant that
moves a supply
curve or demand
curve
No drawing
No drawing
No drawing
Explanation
Clear and well
written explanation
of how determinant
moves the curve
A well written
explanation of how a
determentant moves
the curve
An unclear
explantion of how
the determinant
moves the curve
No explanation
Color
Colorful and creative
with several colors
Two colors
One color
No color or attempt
at artistic ability
One determinant of demand is
the number of buyers in the
particular market. The number
of buyers can push the curve to
the right or to the left. For
example, the number of people
who left Detroit, Michigan
means the demand curve for
homes has shifted to the left.
Conversely, in Arizona, the rise
in population has led to the
curve to move to the right.
Describe. Infer. Predict.
Describe: (what do you see in the cartoon)
Infer: (What do you think the cartoon means)
Predict: (How do you think this cartoon might
affect the supply curve (move right or left)
Describe. Infer. Predict.
Describe: (what do you see in the cartoon)
Infer: (What do you think the cartoon means)
Predict: (How do you think this cartoon might
affect the demand curve (move right or left)
SSEMI3 The student will explain how markets, prices,
and competition influence economic behavior.
a. Identify and illustrate on a graph factors that cause
changes in market supply and demand.
b. Explain and illustrate on a graph how price floors
create surpluses and price ceilings create shortages.
c. Define price elasticity of demand and supply.
How can changes in supply and
demand be illustrated?
Determinants of Demand
(Things that shift the entire line!)
•R elated goods (Complements and Substitutes)
•I ncome –
•P references –
•E xpectations –
•N umber of buyers –
Determinants of Supply
(from lesson)
• Change in the cost of productive resources
• Change in technology
• Change in profit opportunities of producing other
products
• Change in producers’ price expectations
• Change in number of sellers in the market
• Change in the government tax or subsidy
Shifts in Supply
Determinants of Supply
(from Cannon)
•G
overnment decisions
•R
esource prices or availability
•E
xpectations
•N
umber of producers
•T
echnology or training
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
overnment decisions
TAXES – taxes increase, supply decreases; taxes decrease, supply increases
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
overnment decisions
SUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply
decreases
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
overnment decisions
REGULATIONS – regulations increase, supply decreases; regulations decrease,
supply increases
Determinants of Supply
(from Cannon)
•G
•R
esource prices or availability •resource prices have an inverse relationship with supply
•resource availability has a direct relationship with supply
•E
•N
•T
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
xpectations – expect to sell more, supply increases; expect to sell less,
supply decreases; expect to sell at future higher prices, immediate supply
decreases.
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
umber of producers – More suppliers leads to an increase in
supply; less suppliers leads to a decrease in supply
Determinants of Supply
(from Cannon)
•G
•R
•E
•N
•T
echnology or training – direct relationship to supply
Determinants of Supply
(from Cannon)
•G
overnment decisions
•R
esource prices or availability -
TAXES – taxes increase, supply decreases; taxes decrease, supply increases
SUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply
decreases
REGULATIONS – regulations increase, supply decreases; regulations decrease,
supply increases
•resource prices have an inverse relationship with supply
•resource availability has a direct relationship with supply
•E
xpectations – expect to sell more, supply increases; expect to sell less,
•N
umber of producers – direct relationship to supply
•T
echnology or training – direct relationship to supply
supply decreases; expect to sell at future higher prices, immediate supply
decreases.
Shifts in Supply
4
3.5
S1
Supply price
3
S2
2.5
A
2
B
1.5
C
1
D
E
0.5
F
0
10
20
30
40
50
60
Quantity of pecans per day
70
80
Please write down the following Supply and Demand
Schedules; graph the supply and demand curve
On the graph paper provided, identify and
label the following
 Supply Curve and Demand Curve
 the Equilibrium Point
 Shortage and Surplus areas
SSEMI3 The student will explain how markets, prices,
and competition influence economic behavior.
a. Identify and illustrate on a graph factors that cause
changes in market supply and demand.
b. Explain and illustrate on a graph how price floors
create surpluses and price ceilings create shortages.
c. Define price elasticity of demand and supply.
What are price ceilings and
price floors?
Price Floors and Price Ceilings
Adam Smith felt that the government
should never interfere in the free market
…
Sadly, Adam Smith was a little bit off base,
we need government to rein in free markets
Government price controls occur when a
government decides to set a legal maximum
or legal minimum price in a market for a good
or service.
A price floor is a legal minimum price for a g, s, or fop
Charging or paying a price below the price floor is
illegal and can carry a penalty under the law.
The most familiar PF is the minimum wage. In the USA, it is
illegal to pay less than $7.25 per hour. There are some
classifications of workers who may not be subject to this
requirement, but most are.
The government’s argument for a minimum
wage stems from a belief that the market wage is
not high enough to provide a reasonable
standard of living for low skilled workers.
A price ceiling is a legal maximum price for a g, s,
fop. Charging or paying a price above the price
ceiling is illegal and can carry a penalty under the
law.
The most familiar “PC” is the rent control. In some
cities, the “ER” is viewed as too high for lower
income people. Therefore, a city designates some
housing units as rent control units.
Price ceilings usually create shortages in
the market.
Price controls will often create underground markets. If the price floor minimum
wage is truly too high for the market to bear, both workers and employers will
choose to trade in the underground market. This is bad for government because
it will not collect taxes on that income earned and it will have to spend resources
to enforce the price floor. If the price ceiling rent is truly too low for the market,
tenants will cheat by illegally subletting their rent controlled apartments to
others, pocketing the difference. Landlords will have no incentive to keep
apartments in good repair and the housing will become substandard. Eventually,
the number of rent controlled units will decline as frustrated landlords convert
their buildings to condominiums or sell off their property for alternative uses.