Transcript Price Quantity - Gore High School

Revision
Achievement Standard 3.1
4credits
Demonstrate understanding of the
efficiency of market equilibrium
Name ______________________
Define the following words
• Allocative Efficiency_______________________________________
_______________________________________________________
• Consumer Surplus ________________________________________
_______________________________________________________
• Producer Surplus _________________________________________
_______________________________________________________
• Dead Weight Loss ________________________________________
_______________________________________________________
• Law of Demand __________________________________________
_______________________________________________________
• Law of Supply
_______________________________________________________
_______________________________________________________
Define the following words
• Allocative Efficiency A point where no one can be made better off
without someone being made worse off. (Consumer and producers
surplus is maximised and there is no DWL)
• Consumer Surplus The difference between what consumers are
willing to pay and the actual price paid for a commodity
• Producer Surplus The difference between the revenue received by a
producer and the cost necessary to produce the good
• Dead Weight Loss A Loss of allocative efficiency in the economy
• Law of Demand As price increases quantity demanded decreases
vice versa ceteris paribus
• Law of Supply As price increases quantity supplied increases vice
versa ceteris paribus
MARKET EQUILIBRIUM AND ALLOACTIVE EFFICIENCY 1. Label the demand
and supply curves
2. Label both axis’s
3.
•
•
•
•
Use the diagram
to show
Equilibrium Price
(Pe)
Equilibrium
Quantity (Qe)
Producer Surplus
(Colour Blue)
Consumer Surplus
(Colour Red)
• Use an arrow to
show the
allocative efficient
point
Producer Surplus
S
Price
Allocative efficient point
Pe
D
Qe
Quantity
Changes to Demand
• List the four factors that will shift the demand curve
• T___________________________
C _____________________
S______________________
• I ___________
Decrease In demand
Increase In demand
On both the
graphs. Label
equilibrium price
and quantity.
Then shade in
the NEW
consumer Red
and producer
surplus Blue
Changes to Demand
• List the four factors that will shift the demand curve
• Tastes and preferneces
• Complements
• Substitutes
• Income
Decrease In demand
Increase In demand
On both the
graphs. Label
equilibrium price
and quantity.
Then shade in
the NEW
consumer Red
and producer
surplus Blue
Changes to Supply
•
•
•
•
•
•
•
List the factors that can cause a shift of the supply curve
C____________________________
E__________________
P____________________
P_____________________________
T_____
S______________
Decrease In Supply
Increase In Supply
On both the
graphs. Label
equilibrium price
and quantity.
Then shade in
the NEW
consumer
surplus Red and
producer surplus
Blue
Changes to Supply
•
•
•
•
•
•
•
List the factors that can cause a shift of the supply curve
Cost of Production
Environmental
Productivity
Price of related goods
Taxes
Subsidies
Increase In Supply
Decrease In Supply
S
S’
On both the
S’ graphs. Label
equilibrium price
and quantity.
Then shade in
the NEW
consumer
surplus Red and
producer surplus
D Blue
S
D
Disequilibrium
Define the following words
• Surplus ________________________________________________
______________________________________________________
• Shortage _______________________________________________
______________________________________________________
Show the effect of a market price above
equilibrium
Show the effect of a market price below
equilibrium
Disequilibrium
Define the following words
• Surplus When quantity supplied is greater than quantity demanded
• Shortage When quantity demanded is greater than quantity
supplied
Show the effect of a market price above
equilibrium
Show the effect of a market price below
equilibrium
S
S
D
D
QD
QS
Surplus
QS
QD
Shortage
Restoring Equilibrium
• Following a surplus explain how market equilibrium is
restored
_____________________________________________
_____________________________________________
____________________________________________
__________________________________________
• Following a shortage explain how market equilibrium
is restored
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Restoring Equilibrium
• Following a surplus explain how market equilibrium is restored
When a surplus is created, producers will respond by lowering
prices to get rid of excess stock. As prices decrease the quantity
supplied decreases following the law of supply and the quantity
demanded increases following the law of demand. This process
continues until equilibrium is restored.
• Following a shortage explain how market equilibrium is restored
When a shortage is created, consumers will bid up the prices as
they don’t want to miss out on the good. As prices increase, the
quantity supplied increases as the good becomes more profitable
following the law of supply and quantity demanded decreases as
the good becomes less affordable following the law of demand.
This process continues until equilibrium is restored.
Restoring Equilibrium
1. Show the effects of the changes on the graphs below
2. Explain the situation created (Either Shortage or Surplus)
3. Say how the market will be restored (Either consumers bid up prices or producers lower
prices)
Increase in Supply
Increase in demand
Situation created:
S
S Situation created:
_______________
_______________
How will the
market return to
equilibrium?
_______________
D _______________
Decrease in demand
S
Situation created:
_______________
How will the
market return to
equilibrium?
_______________
D _______________
D
Decrease in Supply
S
How will the
market return to
equilibrium?
_______________
_______________
Situation created:
_______________
How will the
market return to
equilibrium?
_______________
D _______________
Restoring Equilibrium
1. Show the effects of the changes on the graphs below
2. Explain the situation created (Either Shortage or Surplus)
3. Say how the market will be restored (Either consumers bid up prices or producers lower
prices)
Increase in Supply
Increase in demand
Situation created:
S
S Situation created:
S1 Surplus
Shortage
How will the
How
will
the
P1
market return to
market return to P
P
equilibrium?
equilibrium?
P1
Producers will
Consumers
will
bid
D1
lower prices
up the price
D
D
Q Q1
Decrease in Supply
Q Q1
Decrease in demand
S
Situation created:
Surplus
How will the
market return to
equilibrium?
Producers will
D1 D lower prices
P
P1
Q1
Q
S1
S
P1
P
D
Q1
Q
Situation created:
Shortage
How will the
market return to
equilibrium?
Consumers will bid
up the price
Price Max
S
Price
Pm
D
Qm
Quantity
1. Show the effect of a
Price Maximum on
the diagram
2. Label the new price
as Pmax
3. Label the new
quantity demanded
as QD
4. Label the new
quantity supplied as
QS
5. Label the
surplus/shortage that
exists
6. Shade in the area of
consumer surplus red
7. Shade in the area of
producer surplus as
blue
8. Shade in DWL in black
A Maximum Price
S
Price
Pm
Pmax
D
Qm
Quantity
A Maximum Price
•Qs decreases
S
Price
•Although
consumers would
like to buy more
producers only
supply Qs
Pm
•There is a
shortage
Pmax
D
Qs
Qm
Qd
Quantity
A Maximum Price
S
Price
New CS
Pm
Pmax
D
Qs
Qm
Quantity
A Maximum Price
S
Price
New PS
Pm
Pmax
D
Qs
Qm
Quantity
A Maximum Price
S
Price
DWL
Pm
Pmax
D
Qs
Qm
Quantity
Price Min
S
Price
Pm
D
Qm
Quantity
1. Show the effect of a
Price Minimum on
the diagram
2. Label the new price
as Pmin
3. Label the new
quantity demanded
as QD
4. Label the new
quantity supplied as
QS
5. Label the
surplus/shortage that
exists
6. Shade in the area of
consumer surplus red
7. Shade in the area of
producer surplus as
blue
8. Shade in DWL in black
A Minimum Price
S
Price
Pm
D
Qm
Quantity
A Minimum Price
S
Price
A minimum price
is only effective
when set above
equilibrium price
Pmin
Pm
D
Qm
Quantity
A Minimum Price
S
Price
•Qd decreases
•Although
producers would
like to sell more
they are unable to
at this high price
Pmin
Pm
D
Qd
Qm
Quantity
A Minimum Price
S
Price
Pmin
New CS
Pm
D
Qd
Qm
Quantity
A Minimum Price
S
Price
Pmin
New PS
Pm
D
Qd
Qm
Quantity
A Minimum Price
S
Price
Pmin
DWL
Pm
D
Qd
Qm
Quantity
Subsidy
S
Price
Pm
D
Qm
Quantity
1. Show the effect of a
subsidy on the
diagram
2. Label the new price
consumers pay as PC
3. Label the new price
producers receive as
PP
4. Label the new
quantity as Q1
5. Outline the total cost
to the government in
Black
6. Shade in the area of
consumer surplus red
stripes
7. Shade in the area of
producer surplus as
blue stripes
8. Shade in DWL in black
A Subsidy
S
Price
Pp
S+Subsidy
Pm
Pc
D
Qm
Q1
Quantity
1. Show the effect of a
subsidy on the
diagram
2. Label the new price
consumers pay as PC
3. Label the new price
producers receive as
PP
4. Label the new
quantity as Q1
5. Outline the total cost
to the government in
Black
6. Shade in the area of
consumer surplus red
stripes
7. Shade in the area of
producer surplus as
blue stripes
8. Shade in DWL in black
Subsidy
On the diagram, show the effect on
the market for avocados after a
subsidy payment of .60c per avocado
Label the new Equilibrium price Pc
and Quantity Q1
Before the subsidy
Amount consumed =__________
Price consumers pay =________
Price producers receive =______
Total consumer expenditure
=______________________
Total producer revenue
=_______________________
After the subsidy
Amount consumed =__________
Price consumers pay =________
Price producers receive =______
Amount of government
expenditure =_______________
Total consumer expenditure
=______________________
Total producer revenue
=_______________________
Subsidy
On the diagram, show the effect on
the market for avocados after a
subsidy payment of .60c per avocado
Label the new Equilibrium price Pc
and Quantity Q1
S + Sub
pc
Q1
Before the subsidy
Amount consumed =__________
80 000
Price consumers pay =________
1.80
1.80
Price producers receive =______
Total consumer expenditure
$144000
=______________________
Total producer revenue
$144000
=_______________________
After the subsidy
90 000
Amount consumed =__________
Price consumers pay =________
$1.60
Price producers receive =______
$2.20
Amount of government
.60 x 90000= $54000
expenditure =_______________
Total consumer expenditure
1.60 x 90000= $144000
=______________________
Total producer revenue
2.20 x 90000= $198000
=_______________________
Tax
S
Price
Pm
D
Qm
Quantity
1. Show the effect of a
indirect Tax on the
diagram
2. Label the new price
consumers pay as PC
3. Label the new price
producers receive as
PP
4. Label the new
quantity as Q1
5. Outline the total
revenue to the
government in Black
6. Shade in the area of
consumer surplus red
stripes
7. Shade in the area of
producer surplus as
blue stripes
8. Shade in DWL in black
An Indirect Tax
S+tax
S
Price
Pc
Pm
Pp
D
Q1
Qm
1. Show the effect of a
indirect Tax on the
diagram
2. Label the new price
consumers pay as PC
3. Label the new price
producers receive as
PP
4. Label the new
quantity as Q1
5. Outline the total
revenue to the
government in Black
6. Shade in the area of
consumer surplus red
stripes
7. Shade in the area of
producer surplus as
Quantity blue stripes
8. Shade in DWL in black
Tax
On the diagram, show the effect on
the market for Fireworks of a $4 tax
per box
Label the new Equilibrium price Pc
and Quantity Q1
Before the Tax
Amount consumed =__________
Price consumers pay =________
Price producers receive =______
Total consumer expenditure
=______________________
Total producer revenue
=_______________________
After the Tax
Amount consumed =__________
Price consumers pay =________
Price producers receive =______
Amount of government revenue
=_______________
Total consumer expenditure
=______________________
Total producer revenue
=_______________________
Tax
On the diagram, show the effect on
the market for Fireworks of a $4 tax
per box
Label the new Equilibrium price Pc
and Quantity Q1
S + Tax
Pc
P
Q1
Q
Before the Tax
100
Amount consumed =__________
Price consumers pay =________
$14
$14
Price producers receive =______
Total consumer expenditure
$14 x 100 =$1400
=______________________
Total producer revenue
=_______________________
$14 x 100 =$1400
After the Tax
75
Amount consumed =__________
Price consumers pay =________
$16
Price producers receive =______
$12
Amount of government revenue
4 x 75 = $300
=_______________
Total consumer expenditure
16 x 75 = 1200
=______________________
Total producer revenue
12 x 75 = 900
=_______________________
Incidence of a Tax
S+tax
• Colour the Area of the
incidence of the tax on
consumers RED (The
area of consumer
surplus they have lost
and is now tax revenue
to the government)
S
Price
Pc
Pm
Pp
D
Q’
Qm
Quantity
• Colour the area
represents the incidence
of the tax on producers
BLUE (The area of
producer surplus they
have lost and is now tax
revenue to the
government)
Incidence of a Tax
S+tax
• Colour the Area of the
incidence of the tax on
consumers RED (The
area of consumer
surplus they have lost
and is now tax revenue
to the government)
S
Price
Pc
Pm
Pp
D
Q’
Qm
Quantity
• Colour the area
represents the incidence
of the tax on producers
BLUE (The area of
producer surplus they
have lost and is now tax
revenue to the
government)
Price Elasticity Of Demand
• Define the following
• Inelastic _______________________________________
______________________________________________
• Elastic ________________________________________
______________________________________________
Elastic Demand Curve
Inelastic Demand Curve
Price Elasticity Of Demand
• Define the following
• Inelastic When the price increases the quantity
demanded falls by proportionately less
• Elastic When the price increases the quantity demanded
falls by proportionately more
Elastic Demand Curve
Inelastic Demand Curve
D
D
Incidence of a Tax and Elasticity's
Relatively Inelastic Demand
Relatively Elastic Demand
For both graphs
1. Colour the Area of the incidence of the tax on consumers RED
2. Colour the area represents the incidence of the tax on producers BLUE
3. Who pays most of the tax when the good is inelastic? ____________________________
4. Who pays most of the tax when the good is elastic ?_____________________________
Incidence of a Tax and Elasticity's
Relatively Inelastic Demand
Relatively Elastic Demand
For both graphs
1. Colour the Area of the incidence of the tax on consumers RED
2. Colour the area represents the incidence of the tax on producers BLUE
3. Who pays most of the tax when the good is inelastic? Consumers
4. Who pays most of the tax when the good is elastic ? Producers
Exported Goods
• Define Exports _________________________________________
• Explain why NZ is a price taker _____________________________
______________________________________________________
On the graph
• Draw an appropriate
world price for an
exported good
• Label the domestic
demand at that price as
QD
• Label the domestic
supply at that price level
as QS
• Label the level of
exports X
• Shade in consumer
surplus red
• Shade in producer
surplus Blue
Exported Goods
• Define Exports Goods that are produced in NZ and consumed/ sold overseas
• Explain why NZ is a price taker NZ is a price taker because we are so small
in relation to the rest of the world we have no influence over the world price
______________________________________________________
X
World Demand curve
World
Price
QD
QS
On the graph
• Draw an appropriate
world price for an
exported good
• Label the domestic
demand at that price as
QD
• Label the domestic
supply at that price level
as QS
• Label the level of
exports X
• Shade in consumer
surplus red
• Shade in producer
surplus Blue
Imported Goods
• Define Imports _________________________________________
On the graph
• Draw an appropriate
world price for an
imported good
• Label the domestic
demand at that price as
QD
• Label the domestic
supply at that price level
as QS
• Label the level of
imports M
• Shade in consumer
surplus red
• Shade in producer
surplus Blue
Imported Goods
• Define Imports Goods produced overseas and sold/ consumed in
NZ
World
Price
World supply
curve
QS
QD
Imports
On the graph
• Draw an appropriate
world price for an
imported good
• Label the domestic
demand at that price as
QD
• Label the domestic
supply at that price level
as QS
• Label the level of
imports M
• Shade in consumer
surplus red
• Shade in producer
surplus Blue
Effects of a Tariff
• Define a tariff _________________________________________
PW
Explain what happens to allocative efficiency _______________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
On the graph
• Label the domestic
demand at the current
world price as QD
• Label the domestic
supply at the current
world price as QS
• Show the effect of the
government placing a
tariff on imports
• Label the new level
demanded as QD1
• Label the new level
supplied as QS1
• Label the new level of
imports as M
• Shade in DWL (Black)
• Shade in the area of
government revenue
(Green)
Effects of a Tariff
• Define a tariff – A tax on imported Goods
PW +
Tariff
PW
QS
QD1 QD
QS1
M
Explain what happens to allocative efficiency. A Tariff increases the world
price. This causes consumer surplus to fall as the price paid by consumers increases
. producer surplus to fall and governments increase the amount of revenue gained.
However due to not all of the loss in consumer and producer surplus being gained in
government revenue a loss in allocative efficiency occurs as represented by the DWL
on the graph.
On the graph
• Label the domestic
demand at the current
world price as QD
• Label the domestic
supply at the current
world price as QS
• Show the effect of the
government placing a
tariff on imports
• Label the new level
demanded as QD1
• Label the new level
supplied as QS1
• Label the new level of
imports as M
• Shade in DWL (Black)
• Shade in the area of
government revenue
(Green)