Post on 30-Mar-2015
MICROECONOMICS
• SSEMI1 The student will describe how households, businesses, and governments are interdependent and interact through flows of goods, services, and money.
• a. Illustrate by means of a circular flow diagram, the Product market; the Resource market; the real flow of goods and services between and among businesses, households, and government; and the flow of money.
• b. Explain the role of money and how it facilitates exchange.
• a. Illustrate by means of a circular flow diagram, the Product market; the Resource market; the real flow of goods and services between and among businesses, households, and government; and the flow of money
Markets and Prices.swfClick ME!!!
Circular Flow
Market Economy Mixed Economy
• b. Explain the role of money and how it facilitates exchange. – MONEY IS:• A medium of exchange• A unit of account• A store of value
– In our economy, money is the most effective medium of exchange when purchasing goods.
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• SSEMI2 The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine production and distribution in a market economy.
• a. Define the Law of Supply and the Law of Demand.
• b. Describe the role of buyers and sellers in determining market clearing price.
• c. Illustrate on a graph how supply and demand determine equilibrium price and quantity.
• d. Explain how prices serve as incentives in a market economy.
• a. Define the Law of Supply and the Law of Demand. – LAW OF SUPPLY: Higher Price = Higher Quantity
Supplied (direct relationship)– LAW OF DEMAND: Lower Price = Higher Quantity
Demanded (inverse relationship)
• b. Describe the role of buyers and sellers in determining market clearing price.
• c. Illustrate on a graph how supply and demand determine equilibrium price and quantity.
• d. Explain how prices serve as incentives in a market economy. – The price is the amount of money needed to buy a
particular good or service. – In a market, the price and quantity exchanged are
determined by the interaction of demand and supply.
– Changes in demand or supply alter the price as well as the quantity bought and sold at that price.
• 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.
• a. Identify and illustrate on a graph factors that cause changes in market supply and demand.
• Changes in SUPPLY or DEMAND (not quantity supplied or quantity demanded) cause the supply or demand curve to shift.– Increase in Supply or Demand: Curve shifts right– Decrease in Supply or Demand: Curve shifts left
Factors that change demand• Population• Income• Consumer tastes• Price of complements• Price of substitutes• Expectations of a change in
price
Factors that change supply• Cost of inputs• Technology• Government Regulation
– Taxes– Subsidies
• Expectations of a change in price
• b. Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages.
• SURPLUS– Price above equilibrium– Qd < Qs
• SHORTAGE– Price below equilibrium– Qd > Qs
• Price Ceiling– legally established
maximum price. – Governments enact
price ceilings when they fear that the price might be higher than they desire it to be.
– Creates a shortage– Example: rent-control
• Price Floor– is a legally established
minimum price.– Governments enact
price floors when they fear that the price might be lower than they desire it to be.
– Creates a surplus– Examples: farm products
and the minimum wage.
• c. Define price elasticity of demand and supply. – elasticity of demand is the way of measuring how
much quantity demanded will change in response to a change in price.
• SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy.
• a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.
• b. Explain the role of profit as an incentive for entrepreneurs.
• c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.
• a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.
Sole Proprietorship Partnership Corporation-Most Common-Easiest to start-Unlimited liability
-Two or more owners-Easy to secure funding & risk is shared
-Business is a legal entity, separate from its owners-Most complex to start-Can sell stock to raise money
• b. Explain the role of profit as an incentive for entrepreneurs. – Profit (making money) is the incentive for
entrepreneurs to start new businesses and invent newer and more cost-effective ways of producing goods.
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• c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.
Perfect Competition
Monopolistic Competition
Oligopoly Monopoly
# of Sellers Many Many Few (2-4) One
Variety of Goods
None Some Some None
Control over price
None Some Some Total
Barriers to Entry None Few High Complete
Examples Apples Jeans Airlines NFL