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Unit 3: Microeconomics

Unit 3: Microeconomics. 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 . .

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Unit 3: Microeconomics

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  1. Unit 3: Microeconomics 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 price elasticity of supply.

  2. 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.

  3. Increase Demand Price Decrease Demand Demand Quantity

  4. 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 supplyand demand.

  5. Supply Increase in Cost of production Decrease Supply Price Decrease in Cost of Production Increase Supply Quantity

  6. A Price Ceiling is a maximum legal price BELOW the equilibrium. • It provides perverse incentives, causing a shortage. • Helps the Consumer • Ceiling, below, shortage(CBS)

  7. A Price Floor is a minimum legal price ABOVEthe equilibrium • It provides perverse incentives, causing a surplus. • Helps the Producer • Floor, above, surplus (FAS)

  8. Supply 5 4 Price Floor Price 3 Equilibrium 2 Price Ceiling 1 Demand 1 2 3 4 5 Quantity

  9. Price controls (ceiling) • Assume that a market is in equilibrium and there is no change in supply or demand; relative scarcity has not changed. • A government sets a legal price below the equilibrium (price ceiling) • Buyers will want to buy (more or less). • Suppliers will want to supply (more or less). • There is a (surplus or shortage). • Rent controls, doctors, prescription drugs

  10. Price controls (floor) • Assume that a market is in equilibrium and there is no change in supply or demand; relative scarcity has not changed. • A government sets a legal price above the equilibrium (Price Floor) • Buyers will want to buy (more or less). • Suppliers will want to supply (more or less). • There is a (surplus or shortage). • Minimum wage, agricultural price supports

  11. Unit 3: Microeconomics SSEMI3 The student will explain how markets, prices, and competition influence economic behavior. • c. Define price elasticity of demand and price elasticity of supply. Demand Inelasticity – demand that is not sensitive to price change • Demand Elasticity – demand is sensitive to price change Supply Inelasticity – firms find it hard to change production in a given time period. Supply Elasticity – producers can increase output without a rise in cost or a time delay http://www.tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-supply.html

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