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Standard Address

This lesson delves into market efficiency, productive and allocative efficiency, government interventions like price floors and ceilings, and consumer surplus. Understand economic concepts through real-world examples like Louis Vuitton vs. Payless and Model A vs. Model T. Learn the impact of disequilibrium on market dynamics and how consumers benefit from market exchanges. Explore the intricacies of price ceilings and floors and their effects on resource allocation. Enhance your understanding of economics through practical applications and critical thinking exercises in this informative lesson.

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Standard Address

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  1. Standard Address 6.3 - Objectives 12.1 Students understand common terms & concepts and economic reasoning. • Distinguish between productive efficiency and allocative efficiency. • Explain what happens when government imposes price floors and ceilings. • Identify the benefits that consumers and producers get from market exchange.

  2. A BULLDOG ALWAYS Commitment Attitude CARES Respect Encouragement Safety

  3. Key Terms LESSON 6.3 Market Efficiency and Gains from Exchange productive efficiency allocative efficiency disequilibrium price floor price ceiling consumer surplus CONTEMPORARY ECONOMICS: LESSON 6.3

  4. Competition and Efficiency • Productive efficiency • Making stuff right • Allocative efficiency • Making the right stuff CONTEMPORARY ECONOMICS: LESSON 6.3

  5. Louis Vuitton vs. Payless CONTEMPORARY ECONOMICS: LESSON 6.3

  6. Model A or Model T CONTEMPORARY ECONOMICS: LESSON 6.3

  7. Productive Efficiency: Making Stuff Right • Productive efficiency occurs when a firm produces at the lowest possible cost per unit. • Competition ensures that firms produce at the lowest possible cost per unit. CONTEMPORARY ECONOMICS: LESSON 6.3

  8. Allocative Efficiency: Making the Right Stuff • Allocative efficiency occurs when firms produce the output that is most valued by consumers. • Competition among sellers encourage producers to supply more of what consumers value the most. CONTEMPORARY ECONOMICS: LESSON 6.3

  9. Checkpoint: pg. 180 Distinguish between allocative efficiency and productive efficiency. • Productive efficiency occurs when the firm produces at the lowest possible cost per unit. • Allocative efficiency occurs when firms produce the output that is most valued by consumers. CONTEMPORARY ECONOMICS: LESSON 6.3

  10. Disequilibrium • Disequilibrium—a mismatch between quantity demanded and quantity supplied as the market seeks equilibrium • Disequilibrium is usually a temporary condition when the plans of buyers do not match the plans of sellers. CONTEMPORARY ECONOMICS: LESSON 6.3

  11. Other Sources of Disequilibrium • Government intervention in the market • Sometimes, as a result of government intervention in markets, disequilibrium can last a while. • Sometimes the market takes a while to adjust • New products • Sudden change in demand or supply CONTEMPORARY ECONOMICS: LESSON 6.3

  12. Disequilibrium • A price floor is a minimum selling price that is above the equilibrium price. • To have an impact, a price floor must be set above the equilibrium price. • The Minimum wage is a price floor in the market for labor. • The government sets the minimum labor price and no one is allowed to pay less. CONTEMPORARY ECONOMICS: LESSON 6.3

  13. Price Floor • If a price floor is established above the equilibrium price, a permanent surplus results. CONTEMPORARY ECONOMICS: LESSON 6.3

  14. Price Floor • A price floor established at or below the equilibrium price has no effect. CONTEMPORARY ECONOMICS: LESSON 6.3

  15. Disequilibrium • A price ceiling is a maximum selling price that is below the equilibrium. • To have an impact, a price ceiling must be set below the equilibrium price. • The good intensions of government officials create shortages and surpluses that often are economically wasteful. CONTEMPORARY ECONOMICS: LESSON 6.3

  16. Price Ceiling • A price ceiling is established below the equilibrium price, a permanent shortage will result. CONTEMPORARY ECONOMICS: LESSON 6.3

  17. Price Ceiling • A price ceiling is established at or above the equilibrium price, has no effect. CONTEMPORARY ECONOMICS: LESSON 6.3

  18. Checkpoint: pg. 181 What happens when governments impose price floors and price ceilings? When governments impose price floors or ceilings: market prices are distorted and interfere with the market’s ability to allocate resources efficiently. This results in disequilibrium of the market. CONTEMPORARY ECONOMICS: LESSON 6.3

  19. Consumer Surplus • Consumer surplus - is the difference between the total amount consumers would have been willing and able to pay for that quantity and the total amount they actually do pay. CONTEMPORARY ECONOMICS: LESSON 6.3

  20. CONTEMPORARY ECONOMICS: LESSON 6.3

  21. An Application of Consumer Surplus: Free Medical Care • Certain Americans are provided government-subsidized medical care. • When something is provided for free, people consume it until their marginal benefit is zero. CONTEMPORARY ECONOMICS: LESSON 6.3

  22. Checkpoint: pg. 183 How do consumers benefit from market exchange? Consumers benefit from market exchange by receiving the goods they demand and want at a price they are willing to pay. When there is a consumer surplus, consumers pay lower prices than they would have originally been willing to pay. CONTEMPORARY ECONOMICS: LESSON 6.3

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