The Market Never Stands Still. 1. According to the schedule and the graph, what is the equilibrium...

The Market Never Stands Still

Bell ringer, 9.15

1. According to the schedule and the graph, what is the equilibrium price and quantity demanded in this example?

2. Priced at $19, what is the surplus / shortage?

3. If there is a shortage of -800, then what was the price of the DVDs?

Please write down the three questions below. Use the chart on page 195 to answer. Thanks.

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.

Today’s Objective:

How can changes in supply and demand be illustrated?

Today’s Essential Question:

Determinants of Demand

• Change in consumer income

• Change in tastes and preferences

• Change in the price of a substitute good

• Change in the price of a complementary good

• Change in consumers’ price expectations

• Change in number of consumers in the market

Shifts in Demand D

em

an

d

pri

ce

Quantity of pecans per day

10 20 30 40 50 60 70 800.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

D1

A B

C D

E F

D2

Determinants of Demand(Things that shift the entire line!)

•R

•I

•P•E•N

elated goods (Complements and Substitutes)

ncome –

references –

xpectations –

umber of buyers –

Determinants of Demand (from Cannon)(Things that shift the entire line!)

•R

•I•P•E•N

elated goods (Complements and Substitutes)Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases


•R

•I•P•E•N

elated goods (Complements and Substitutes)Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increasesSubstitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases

Related goods (Complements and Substitutes)


•R

•I

•P•E•N

ncome – income increases, demand increases; income decreases, demand decreases

Income – income increases, demand increases; income decreases, demand decreases


•R

•I

•P

•E•N

references – preferences increase, demand increases; preferences decrease, demand decreases

Preferences – preferences increase, demand increases; preferences decrease, demand decreases


•R

•I

•P•E

•N

xpectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases

Expectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases


•R •I

•P•E•N umber of buyers – # of buyers increase, demand

increases; # of buyers decrease, demand decreases

The demand for a particular good may increase or decrease due to more or less people in the market for the good. For example, before the advent of ecommerce (using the world wide web to buy and sell), most businesses sold products to people who lived in their area of the country or who ordered products from their mail order catalogs. As people began to use online shopping in greater numbers, many businesses with little or no web presence probably experienced a decline in consumers of their products due to increased competition from online businesses while businesses who quickly and effectively adapted to the ecommerce model probably saw an increase in consumers of their products.

Number of buyers – # of buyers increase, demand increases; # of buyers decrease, demand decreases

IRDL the Turtle!!!!

Increase Right, Decrease Left

Pecan Article

• http://online.wsj.com/news/articles/SB10001424052748704076804576180774248237738

Pecan statements

1. Lunar New Year, Chinese love Pecans on New year2. Corn syrup, used with pecans to make pecan pie, has risen in price3. Price of walnuts increases4. Household income increases in China5. Price of pecans drops6. US trade agreements allow for more pecans to be sold in more

countries7. Pecan prices expected to be higher next year8. Famous celebrities seen eating pecans at award ceremonies

Bell ringer, 9.15Exceptional4 points

Good 3 points

Average 2 points

Below Average1 point

Title and curve Title and curve also showing the change in supply or change in demand

Title and curve but does not show the

Title but no supply curve or demand curve

No title

Drawing A drawing that is an ample of a determinant that moves a supply curve or demand curve

No drawing No drawing No drawing

Explanation Clear and well written explanation of how determinant moves the curve

A well written explanation of how a determentant moves the curve

An unclear explantion of how the determinant moves the curve

No explanation

Color Colorful and creative with several colors

Two colors One color No color or attempt at artistic ability

How number of buyers affect the demand curve …

One determinant of demand is the number of buyers in the particular market. The number of buyers can push the curve to the right or to the left. For example, the number of people who left Detroit, Michigan means the demand curve for homes has shifted to the left. Conversely, in Arizona, the rise in population has led to the curve to move to the right.

Bell ringer, 9.16

Describe: (what do you see in the cartoon)

Infer: (What do you think the cartoon means)

Predict: (How do you think this cartoon might affect the supply curve (move right or left)

Describe. Infer. Predict.

Bell ringer, 9.16

Describe: (what do you see in the cartoon)

Infer: (What do you think the cartoon means)

Predict: (How do you think this cartoon might affect the demand curve (move right or left)

Describe. Infer. Predict.

How can changes in supply and demand be illustrated?

Today’s Essential Question:

Determinants of Demand(Things that shift the entire line!)

•R

•I

•P•E•N

elated goods (Complements and Substitutes)

ncome –

references –

xpectations –

umber of buyers –

Determinants of Supply(from lesson)

•Change in the cost of productive resources

•Change in technology

•Change in profit opportunities of producing other products

•Change in producers’ price expectations

•Change in number of sellers in the market

•Change in the government tax or subsidy

Shifts in Supply

Determinants of Supply (from Cannon)

•G

•R

•E

•N

•T

overnment decisions

esource prices or availability

echnology or training

xpectations

umber of producers


•G

•R

•E

•N

•T


•G

•R

•E

•N

•T

overnment decisionsTAXES – taxes increase, supply decreases; taxes decrease, supply increases

Tax on Goods


•G

•R

•E

•N

•T

overnment decisionsSUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply decreases

Subsidies on Goods


•G

•R

•E

•N

•T

overnment decisionsREGULATIONS – regulations increase, supply decreases; regulations decrease, supply increases

Regulations


•G

•R

•E

•N

•T

esource prices or availability - •resource prices have an inverse relationship with supply•resource availability has a direct relationship with supply

When supply is limited, price is high


•G

•R

•E

•N

•T

xpectations – expect to sell more, supply increases; expect to sell less, supply decreases; expect to sell at future higher prices, immediate supply decreases.


•G

•R

•E

•N

•T

umber of producers – More suppliers leads to an increase in supply; less suppliers leads to a decrease in supply

Suppliers Enter the Market

Suppliers Exit the market


•G

•R

•E

•N

•T echnology or training – direct relationship to supply


•G

•R

•E

•N

•T

overnment decisionsTAXES – taxes increase, supply decreases; taxes decrease, supply increasesSUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply decreasesREGULATIONS – regulations increase, supply decreases; regulations decrease, supply increases

esource prices or availability - •resource prices have an inverse relationship with supply•resource availability has a direct relationship with supply

echnology or training – direct relationship to supply

xpectations – expect to sell more, supply increases; expect to sell less, supply decreases; expect to sell at future higher prices, immediate supply decreases.

umber of producers – direct relationship to supply

Shifts in SupplyS

up

ply

p

rice

Quantity of pecans per day

10 20 30 40 50 60 70 800

0.5

1

1.5

2

2.5

3

3.5

4

S1 S2

A

B

C

DE

F

Bell ringer, 9.17Please write down the following Supply and Demand

Schedules; graph the supply and demand curve

Bell ringer, 9.18On the graph paper provided, identify and

label the following

Supply Curve and Demand Curve

the Equilibrium Point

Shortage and Surplus areas

Essential questionWhat are price ceilings and price floors?

Price Floors and Price Ceilings

Adam Smith felt that the government should never interfere in the free market …

Sadly, Adam Smith was a little bit off base, we need government to rein in free markets

Price FloorsAnd

Price Ceilings

Government price controls occur when a government decides to set a legal maximum or legal minimum price in a market for a good or service.

A price floor is a legal minimum price for a g, s, or fop Charging or paying a price below the price floor is illegal and can carry a penalty under the law.

The most familiar PF is the minimum wage. In the USA, it is illegal to pay less than $7.25 per hour. There are some classifications of workers who may not be subject to this requirement, but most are.

The government’s argument for a minimum wage stems from a belief that the market wage is not high enough to provide a reasonable standard of living for low skilled workers.

A price ceiling is a legal maximum price for a g, s, fop. Charging or paying a price above the price ceiling is illegal and can carry a penalty under the law.

The most familiar “PC” is the rent control. In some cities, the “ER” is viewed as too high for lower income people. Therefore, a city designates some housing units as rent control units.

Price ceilings usually create shortages in the market.

Price controls will often create underground markets. If the price floor minimum wage is truly too high for the market to bear, both workers and employers will choose to trade in the underground market. This is bad for government because it will not collect taxes on that income earned and it will have to spend resources to enforce the price floor. If the price ceiling rent is truly too low for the market, tenants will cheat by illegally subletting their rent controlled apartments to others, pocketing the difference. Landlords will have no incentive to keep apartments in good repair and the housing will become substandard. Eventually, the number of rent controlled units will decline as frustrated landlords convert their buildings to condominiums or sell off their property for alternative uses.

Bell ringer, 9.21Please write down the following demand schedule and

graph the demand curve

Bell ringer, 9.21Please answer the following 3 questions, you do not

have to write the question …

1.What is the difference in Quantity Demand if you move from $10 to $35?

2.What is the difference in Quantity Demand if you move from $45 to $15?

3.What is the difference in Price Demand if you from 40 stuffed animals to 70 stuffed animals?

Essential questionHow does elasticity explain the changes in demand and supply?

Price elasticity of demand refers to the responsiveness of consumers to changes in price.

Elasticity of Demand

Market “D” is inelastic when the % change in the price of a good is greater than the % change in quantity “D” of the good. For example, if a diabetic needs insulin in order to live, they are likely to purchase just as much even if the price rises significantly.


Market “D” is elastic when the % change in the price of a good is less than the % change in quantity “D" of the good. For example, if the price of snack you buy goes up, you will likely buy a much smaller quantity because you immediately substitute another snack for it since you have so many choices.


What does inelastic “D” look like? The first graph shows relatively inelastic “D” which means a price change on the “D” curve results in a very small change in quantity “D”. The second graph shows perfectly inelastic “D” which means a price change on the “D” curve results in no change in quantity demanded.


Relative Perfect

What does elastic “D” look like graphically? The first graph shows relatively elastic “D” which means a price change on the “D" curve results in a very large change in quantity “D”. The second graph shows perfectly elastic “D” which means any price increase or decrease no longer intersects the “D” curve and there is no quantity “D” at any other price.


Relative Perfect

Bell ringer, 9.22Please write down the following questions. Listen to the

podcast clip to answer … (17:00)

1.Why is Volkswagen in trouble with the United States government?

2.What is the maximum fine per vehicle that could be levied by the EPA against Volkswagen?

3.If the United States government cracks down on Volkswagen, will that shift the demand curve to the left or the right?

Essential questionHow does elasticity explain the changes in demand and supply?

Price elasticity of supply refers to the responsiveness of sellers to changes in price

Elasticity of Supply

Market supply is inelastic when the percentage change in the price of a good is greater than the percentage change in quantity demanded of the good…


Market supply is elastic when the percentage change in the price of a good is less than the percentage change in quantity demanded of the good. For example, if a company has a factory and it is currently operating at 70% of its capacity and the price of its product rises in the market, it can utilize some of its excess capacity quickly to take advantage of the higher prices.


What does inelastic supply look like graphically? The first graph shows relatively inelastic “S” which means a price change on the “S” curve results in a very small change in quantity “S”. The second graph shows perfectly inelastic “S” which means a price change on the “S” curve results in no change in quantity “S”.


Relatively InelasticPerfectly Inelastic

What does elastic supply look like graphically? The first graph shows relatively elastic “S” which means a price change on the “S” curve results in a very large change in quantity “S”. The second graph shows perfectly elastic “S” which means any price increase or decrease no longer intersects the “S” curve and there is no quantity “S” at prices higher or lower than the current price.


The Market Never Stands Still. 1. According to the schedule and the graph, what is the equilibrium...

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