Market Forces

1. Market Forces SECTION ONE Price, Quantity, and Market Equilibrium https://www.youtube.com/watch?v=JUVcxa-wGcE

2. Market Exchange: we know about this already… • What 3 economic questions? • Adam Smith: The Invisible Hand • What is it? • Market Exchange is voluntary and both sides expect to benefit

3. How Does What We Already know impact market exchanges? • Market prices guide resource to their most ___________ uses • Higher price encourages producers to allocate ________ resources to _____ good and ______ resources to production of _______ goods AND • Channel goods to those consumers who _______ them ________. • Higher price encourages consumers to _______ or go ________

4. What do markets do? • Allow you to ______ and ________ for a price • Buyers and sellers have different ___________ • EX: PRICE RISES: • Consumers ______ their quantity demanded • Producers ______ their quantity supplied • Market Forces will ________ this difference • Markets reduce ________ costs • Decrease the amount of ______ and ______ needed to carry out an exchange • ex: Car dealerships

5. MARKET EQUILIBRIUM • Market Forces exert _______ until supply & demand _____ at the market __________ • THEN: exert no ________ force • Must consider ______ AND _______ to figure out how reaches ____________. • FORMULA FOR EQUILIBRIUM: • Quantity that consumers are willing and able to ______ = quantity that producers are willing and able to _______

6. SURPLUS (downward pressure on price) SHORTAGE (upward pressure on price) Excess quantity ________ Consumers want ______ than there is Pushes the price ____ Producers _______ quantity supplied Consumers ______ their quantity demanded As long as quantity demanded __ quantity supplied the shortage forces the price ______ • Excess quantity _______ • Suppliers want to get rid of their _______ • Pushes the price _____ • Producers ______ quantity supplied • Consumers _____ quantity demanded • As long as quantity supplied ____ quantity demanded the surplus forces the price _____

7. Market Forces Lead to Equilibrium Price and Quantity Equilibrium quantity: ________ Equilibrium price: ___________

8. Equilibrium Price aka Market Clearing Price • Once reach equilibrium there is no force of change _____ there is a ________ the supply or demand curve • Independent ______ of individual sellers and buyers causes equilibrium in _________ markets

9. Market Forces SECTION TWO Shifts of supply and demand curves

10. Overview • Changes in _________ of supply or demand _______ the curves • This changes the ________ • Changes to new equilibrium if often ______ • Sometimes equilibrium is not reached • Usually due to government _________

11. Remember Shifts • DEMAND SHIFTS • Rightward shift = _______ price & quantity • Leftward shift = _______ price & quantity • SUPPLY SHIFTS • Rightward shift = _________ • Leftward shift = __________

12. Shifts of Demand Curve • Means quantity demanded changes at ______ price • What can shift demand: • Change in the money _______ of consumers • Change in the price of a ______________ good • Change in _________ • Change in the number of _________ • Change in consumer ________ http://www.econedlink.org/interactives/EconEdLink-interactive-tool-player.php?filename=graph4.swf&lid=550

13. Increase in demand • Means _______ are more willing and able to buy the product at every price. • Does _______ shift the ______ curve in any way!

14. Shifts of Supply Curve • Means quantity supplied changes at every ________ • What can shift supply: • Change in the ______ of ________ used • Change in the price of ________ could ______ • Change in ________ • Change in _______ expectations • Change in ________ of suppliers

15. Increase in supply • Means _______ are more willing and able to ________ the product at every price. • Does NOT shift the _______ curve in any way!

16. What Happens When Both Curves Shift? • Shift in the _______ direction: • If supply and demand _____: • Equilibrium _______ will ________ • Equilibrium price depends on which increases ____ • Demand increase ___ supply increase = price ___ • Demand increase ___ supply increase = price _____ • If supply and demand ________ • Equilibrium ________ will _________ • Equilibrium price depends on which decreases ____ • Demand decrease __ supply decrease = price ____ • Demand decrease __supply decrease = price ____

17. What if they shift in opposite directions? • One increases and one decreases = opposite direction • _____ determine equilibrium _____ changes • _______ determine equilibrium _______ changes • Demand increase and supply decrease • Equilibrium price will ______ • Demand decrease and supply increase • Equilibrium price will _______

18. Create a graphic organizer to keep these changes organized

19. Market Forces SECTION THREE Market Efficiency and Gains from Exchange

20. Competition and Efficiency(economists use 2 measures) • ________ Efficiency • Producing output at the _______ possible ______ • Making stuff RIGHT • ________ forces firms to produce at the lowest possible cost • If not they either ___ their process or ______ the business • ________ Efficiency • Producing output that consumers _______ the ______ • Making the RIGHT stuff • When marginal _____ = marginal _____ of producing that market is allocatively efficient

21. What does efficiency mean • Supply curve = • opportunity ______ of producing the good • Demand curve = • marginal _______ that consumers attach to each unit of the good • Supply and Demand intersect at price and quantity where: • Marginal benefit_______ attach = marginal cost of ________ of that unit

22. Need both productive and allocative efficiency • Consider you are the best producer of this…. • Will your business be successful? Explain…

23. Disequilibrium • During the time necessary to ______ • When ______ plans and ______ plans do not ______ • Usually ________ • Can last _____ usually due to government ___________

24. Causes of Disequilibrium • Government Regulations • Price Floor • ______ legal price • Set _____ the equilibrium point • Results in a ______ • Examples: • Set minimum price of __________ goods • Government buys and stores or disposes of surplus goods • Another example?

25. Causes of Disequilibrium • Price Ceiling • ________ legal price • Set ______ the equilibrium price • Results in a _______ • Examples: • _______ Ceilings • Maximum price for rental properties, often “other” fees get charged due to the ensuing shortage and competition for properties

26. Other Sources of Disequilibrium • ______ items and _____ items often cause a _______ shortage • New items that do not _______ customers sit around in a ______

27. Consumer Surplus • The difference between the most consumers are willing and able to ______ for a given quantity and the amount they _____ • When something is ______ the marginal benefit is _____ and the consumers will consume it until their marginal benefit is __ • Means there will be _____ use • Even _____ fees will decrease this overuse • Ex: free medical vs. minimal cost ($1)

28. WHAT IS SUPPLY AND DEMANDhttp://vimeo.com/27046074http://hackleychair.blogspot.com/2012/02/hackley-endowment-supply-and-demand.html

29. NY Times Article: RentsYou must cite specifics from the article • What do renters do to compete for new apartments • What do owners/mgmt. companies do to make apartments attractive to renters • What are average rent prices in NYC • If NYC place a price ceiling of $1,800/mo for a 2 bedroom apartment what do you anticipate would happen to this competitive market (think addtl fees; shortages; quality of apartments; new construction etc)

30. Minimum Wage • Find two articles from a newspaper, magazine, etc (not a personal blog) that: • 1 that argues in favor of a higher minimum wage (price floor) • 1 that argues against a higher (maybe any) minimum wage (price floor) • Do you believe there should be a higher minimum wage why or why not • Be certain to specifically cite evidence from both articles in developing your postition