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