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MicroeconomicsEconomics
Key Terms
• Circular flow• Resource market• Product market• Law of Demand• Law of Supply• Quantity Demanded• Quantity Supplied• Equilibrium• Determinants of Demand• Determinants of Supply
• Price Ceiling• Price Floor• Perfect Competition• Monopolistic
Competition• Oligopoly• Monopoly• Sole Proprietorship• Partnership• Corporation
LESSON 1: CIRCULAR FLOW
Standards
SSEMI1 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money.
a. Illustrate a circular flow diagram that includes the product market, the resource (factor) market, households, and firms.
b. Explain the real flow of goods, services, resources, and money between and among households and firms.
Key Questions
• What are the two main sectors of the economy?
• What do households need businesses for?
• What do businesses need households for?
• What does the Circular Flow Model (CFM) demonstrate?
• What is the resource, or factor, market?
• What is the product market?
Households and Firms
The free market economy is powered by the “household” and the “firm”…
Household—a person or group of persons living in the same residence. These are the CONSUMERS.
Firm—an organization that uses resources to produce a product, which it sells. Firms are the PRODUCERS.
The Factor Market
• Firms purchase factors of production from households…
• Land, Labor & Human Capital.
• This is the factor market—
• The place where firms purchase land, labor, human capital and physical capital.
The Product Market
The goods and services that firms produce…
Are sold in the Product Market…
And purchased by households…
With the money they received from firms in the factor market.
Product
Markets
Goods and
Services
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
Factories
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Product
Markets
Goods and
Services
Factor Markets
Land Labor
Capital
Entrepreneurs
Business
and
FactoriesIndividuals
and
Households
Circular Flow of Economic Activity
Circular Flow of Economic Activity
LESSON 2: SUPPLY AND DEMAND
Standards
SSEMI2 Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy.
a. Define the law of supply and the law of demand.
b. Distinguish between supply and quantity supplied, and demand and quantity demanded.
Connection to Circular Flow Model
1. Do individuals supply or demand?
2. Do business supply or demand?
3. Who demands in the product market?
4. Who supplies in the product market?
26
Key Questions
• What is the difference between a change in demand versus a change in quantity demanded?
• What is the difference between a change in supply versus a change in quantity supplied?
• Where do you find the market clearing price?
• How do buyers impact prices?
DEMAND DEFINED
28
What is Demand?
Demand is the different quantities of goods
that consumers are willing and able to buy at
different prices.(Ex: Bill Gates is able to purchase a Ferrari, but if
he isn’t willing he has NO demand for one)
What is the Law of Demand?
There is an INVERSE relationship between
price and quantity demanded
LAW OF DEMANDAs Price Falls…
…Quantity Demanded Rises
As Price Rises…
…Quantity Demanded Falls
29
PriceQuantity
Demanded
Example of DemandI am willing to sell several A’s in Honors
Economics. How much will you pay?
30
Price Quantity
DemandedDemand
Schedule
Why does the Law of Demand occur?
The law of demand is the result of three
separate behavior patterns that overlap:
1.The Substitution effect
2.The Income effect
3.The Law of Diminishing Marginal Utility
We will define and explain each…
31
Why does the Law of Demand occur?
If the price goes up for a product, consumer buy less of that product and more of another substitute product (and vice versa)
If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more.
32
1. The Substitution Effect
2. The Income Effect
Why does the Law of Demand occur?
• Utility = Satisfaction• We buy goods because we get utility from them• The law of diminishing marginal utility states that as
you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease
• In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit.
Discussion Questions:
1. What does this have to do with the Law of Demand?
2. How does this effect the pricing of businesses?
33
3. Law of Diminishing Marginal Utility
U-TIL-IT- Y
Change
N/A
$54
$33
$15
$10
$5
Can you see the Law of Diminishing Marginal Utility in Disneyland’s pricing strategy?
Graphing Demand
35
The Demand Curve• A demand curve is a graphical representation of a
demand schedule.
• The demand curve is downward sloping showing the inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis)
• When reading a demand curve, assume all outside
factors, such as income, are held constant.
Let’s draw a new demand curve for cereal…
36
GRAPHING DEMAND
37
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
Draw this large
in your notes
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
GRAPHING DEMAND
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
38
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
Demand
LESSON 3: CHANGE IN QUANTITY DEMANDED
Standards
SSEMI3 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money.
b. Identify the determinants (shifters) of demand (e.g., changes in related goods, income, consumer expectations, preferences/tastes, and number of consumers) and illustrate the effects on a supply and demand graph.
Key Questions
• List the non-price determinants (shifters) of demand and define each one.
• Provide an example of a complementary good.
• How does the substitution effect impact demand?
• What impact do changes in consumer income have on demand?
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
42
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
Demand
What if cereal
makes you smarter?
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
43
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
44
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
45
PriceQuantity
Demanded
$5 10 30
$4 20 40
$3 30 50
$2 50 70
$1 80 100
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
46
PriceQuantity
Demanded
$5 10 30
$4 20 40
$3 30 50
$2 50 70
$1 80 100
Demand
D1
Increase in Demand
Prices didn’t change but
people want MORE
cereal
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
47
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
What if cereal
causes baldness?
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
48
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
49
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
50
PriceQuantity
Demanded
$5 10 0
$4 20 5
$3 30 20
$2 50 30
$1 80 60
Demand
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
51
PriceQuantity
Demanded
$5 10 0
$4 20 5
$3 30 20
$2 50 30
$1 80 60
DemandD2
Decrease in Demand
Prices didn’t change but
people want LESS cereal
Change in Demand
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Demand
Schedule
10 20 30 40 50 60 70 80
52
PriceQuantity
Demanded
$5 10
$4 20
$3 30
$2 50
$1 80
What if the price
of MILK goes up?
Demand
What Causes a Shift in Demand?
5 Shifters (Determinates) of Demand:
1.Tastes and Preferences
2.Number of Consumers
3.Price of Related Goods
4.Income
5.Future Expectations
Changes in PRICE don’t shift the curve. It
only causes movement along the curve.53
Prices of Related Goods
2. Complements are two goods that are bought
and used together. – If the price of one increase, the demand for the
other will fall. (or vice versa)
– Ex: If price of skis falls, demand for ski boots will...
1. Substitutes are goods used in place of one
another. – If the price of one increases, the demand for the
other will increase (or vice versa)
– Ex: If price of Pepsi falls, demand for coke will…
The demand curve for one good can be affected by a
change in the price of ANOTHER related good.
54
Substitutes
55
Substitutes
56
Substitutes
57
Substitutes
58
Substitutes
59
Substitutes
60
Substitutes
61
Complements
62
Income
2. Inferior Goods – As income increases, demand falls– As income falls, demand increases– Ex: Top Ramen, used cars, used clothes,
1. Normal Goods – As income increases, demand increases– As income falls, demand falls– Ex: Luxury cars, Sea Food, jewelry, homes
The incomes of consumer change the demand, but
how depends on the type of good.
63
Inferior Goods
64
P
Q Cerealo
$3
$2
D1
Price of Cereal
Quantity of Cereal
10 20
Change in Qd vs. Change in Demand
A C
B
There are two ways to increase quantity from 10 to 20
D2
1. A to B is a change
in quantity
demand (due to a
change in price)
2. A to C is a change
in demand (shift
in the curve)
PracticeFirst, identify the determinant (shifter) then
decide if demand will increase or decrease
66
ShifterIncrease or
DecreaseLeft or Right
1
2
3
4
5
6
7
8
Practice
Hamburgers (a normal good)1. Population boom 2. Incomes fall due to recession3. Price for Carne Asada burritos falls to $1 4. Price increases to $5 for hamburgers5. New health craze- “No ground beef”6. Hamburger restaurants announce that they
will significantly increase prices NEXT month 7. Government heavily taxes shake and fries
causes their prices to quadruple.8. Restaurants lower price of burgers to $.50
First identify the determinant (Shifter). Then
decide if demand will increase or decrease
67
LESSON 4: SUPPLY AND DEMAND
Standards
SSEMI3 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money.
a. Identify the determinants (shifters) of supply (e.g., changes in costs of productive resources, government regulations, number of sellers, producer expectations, technology, and education) and illustrate the effects on a supply and demand graph.
Key Questions
• List the non-price determinants (shifters) of supply and define each one.
• What impact does input costs have on supply of a good/service?
• What impact does government regulation and taxes have on supply of a good/service?
• How do technology investments increase supply?
Supply DefinedWhat is supply?
Supply is the different quantities of a good that sellers
are willing and able to sell (produce) at different prices.
What is the Law of Supply?
There is a DIRECT (or positive) relationship between
price and quantity supplied.
•As price increases, the quantity producers make
increases
•As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking
firms have an incentive to produce more.
EXAMPLE: Mowing Lawns71
Example of SupplyYou own an lawn mower and you are
willing to mow lawns. How many lawns will you mow at these prices?
Price per
lawn mowed
Quantity
SuppliedSupply
Schedule
72
$1
$5
$20
$50
$100
$1000
GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
Draw this large
in your notes
73
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
74
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
75
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
What if new
companies start making
cereal?
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
76
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
77
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
78
PriceQuantity
Supplied
$5 50 70
$4 40 60
$3 30 50
$2 20 40
$1 10 30
Supply
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
79
SupplyS2
PriceQuantity
Supplied
$5 50 70
$4 40 60
$3 30 50
$2 20 40
$1 10 30
Increase in SupplyPrices didn’t change but
there is MORE cereal produced
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
80
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
What if a drought
destroys corn and wheat
crops?
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
81
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
82
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
83
PriceQuantity
Supplied
$5 50 30
$4 40 20
$3 30 10
$2 20 1
$1 10 0
Supply
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
84
Supply
S2
PriceQuantity
Supplied
$5 50 30
$4 40 20
$3 30 10
$2 20 1
$1 10 0
Decrease in SupplyPrices didn’t change but
there is LESS cereal produced
Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply
Schedule
10 20 30 40 50 60 70 80
85
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
What if cereal companies
find a quicker way to make
cereal?
6 Shifters (Determinants) of Supply
1. Cost of resources
2. Number of Sellers
3. Technology
4. Government regulation: Taxes &
SubsidiesSubsidies
A subsidy is a government payment that supports a business or market.Subsidies cause the supply of a good to increase.
TaxesThe government can reduce the
supply of some goods by placing anexcise tax on them. An excise taxis a tax on the production or sale of
a good.
RegulationRegulation occurs when the
government steps into a market toaffect the price, quantity, or quality of
a good. Regulation usually raisescosts.
5. Education
6. Producer expectationChanges in PRICE don’t shift the curve. It only
causes movement along the curve. 86
Supply PracticeFirst, identify the determinant (shifter) then
decide if supply will increase or decrease
87
ShifterIncrease or
DecreaseLeft or Right
1
2
3
4
5
6
Supply Practice
Hamburgers1. Mad cow disease kills 20% of cows 2. Price of hamburgers increase 30%3. Government taxes burger producers4. Restaurants owners train their
employees in better methods of hamburger flipping.
5. New bun baking technology cuts production time in half
6. Minimum wage increases to $20
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
88
LESSON 5: EQUILIBRIUM
Standards
SSEMI2 Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy.
c. Describe the role of buyers and sellers in determining market clearing price (i.e.equilibrium).
d. Illustrate on a graph how supply and demand determine equilibrium price and quantity.
Review1. Explain the Law of Demand
2. Explain the Law of Supply
3. Identify the 5 shifters of demand
4. Identify the 6 shifters of supply
5. Identify 10 stores in the mall
91
Putting Supply and
Demand Together!!!
92
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
93
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
D
SSupply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
94
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Equilibrium Price = $3 (Qd=Qs)
Equilibrium Quantity is 30
D
S
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
95
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
D
S
What if the price
increases to $4?
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
96
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
D
S
At $4, there is disequilibrium. The quantity
demanded is less than quantity supplied.
Surplus(Qd<Qs)
How much is the surplus at $4?
Answer: 20
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
97
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
D
S
How much is the surplus if the price is $5?
Answer: 40What if the price
decreases to $2?
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
98
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
D
S
At $2, there is disequilibrium. The quantity
demanded is greater than quantity supplied.
Shortage(Qd>Qs)
How much is the shortage at $2?
Answer: 30
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
99
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
D
S
Answer: 70
How much is the shortage if the price is $1?
Qo
$5
4
3
2
1
PDemand
Schedule
10 20 30 40 50 60 70 80
100
P Qd
$5 10
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
P Qs
$5 50
$4 40
$3 30
$2 20
$1 10
D
SWhen there is a
surplus, producers lower prices
The FREE MARKET system automatically pushes the price toward equilibrium.
When there is a shortage, producers
raise prices
Shifting Supply and
Demand
101
Assume shifts in supply or demand change
equilibrium P and Q instantaneously
102
Supply and Demand AnalysisEasy as 1, 2, 3
1. Before the change:• Draw supply and demand
• Label original equilibrium price and quantity
2. The change:• Did it affect supply or demand first?
• Which determinant caused the shift?
• Draw increase or decrease
3. After change:• Label new equilibrium?
• What happens to Price? (increase or decrease)
• What happens to Quantity? (increase or decrease)
Let’s Practice!103
S&D Analysis Practice
Analyze Hamburgers1. Price of sushi (a substitute) increases2. New grilling technology cuts production
time in half3. Price of burgers falls from $3 to $1. 4. Price for ground beef triples5. Human fingers found in multiple burger
restaurants.
1. Before Change (Draw equilibrium)
2. The Change (S or D, Identify Shifter)
3. After Change (Price and Quantity After)
104
Pearl Exchange
Activity
105
Voluntary Exchange Activity
106
LESSON 6: PRICE FLOORS AND CEILINGS
Standards
SSEMI3 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money.
c. Explain and illustrate on a graph how prices set too high (e.g., price floors) create surpluses, and prices set too low (e.g., price ceilings) create shortages.
Key Questions
• What is a government price floor?
• What is a government price ceiling?
• What is the result of a price floor?
• What is the result of a price ceiling?
Government
Involvement#1-Price Controls: Floors and Ceilings
#2-Subsidies
#3-Taxes
110
#1-PRICE CONTROLSWho likes the idea of having a price ceiling on
gas so prices will never go over $1 per gallon?
111
Price Ceiling= ShortageDisequilibrium
• Pc- Central Authority sets a Price Ceiling below the Equilibrium Price (Pe).
• Quantity Supplied (Qs) is less than Quantity Demanded (Qd) causing a shortage.
• To Calculate a Shortage: Quantity Supplied minus Quantity Demanded
Qo
$5
4
3
2
1
P
10 20 30 40 50 60 70 80 113
D
S
Shortage(Qd>Qs)
Maximum legal price a seller can charge for a product.Goal: Make affordable by keeping price from reaching Eq.
Gasoline
Does this
policy help
consumers?
Result:
BLACK
MARKETSPrice
Ceiling
Price Ceiling
To have an effect,
a price ceiling must be
below equilibrium
Price Floor= SurplusDisequilibrium
• Pf- Central Authority sets a Price Floor above the Equilibrium Price (Pe).
• Quantity Supplied (Qs) is greater than Quantity Demanded (Qd) causing a surplus.
• To Calculate a Surplus: Quantity Supplied minus Quantity Demanded
Qo
$
4
3
2
1
P
10 20 30 40 50 60 70 80 115
D
SSurplus(Qd<Qs)
Minimum legal price a seller can sell a product.
Goal: Keep price high by keeping price from falling to Eq.
Corn
Does this
policy help
corn
producers?
Price Floor
Price Floor
To have an effect,
a price floor must be
above equilibrium
Practice Questions1. Which of the following will occur if a legal price floor is
placed on a good below its free market equilibrium?
A. Surpluses will develop
B. Shortages will develop
C. Underground markets will develop
D. The equilibrium price will remain the same
E. The quantity sold will increase
A. A price ceiling causes a shortage if the ceiling price is
above the equilibrium price
B. A price floor causes a surplus if the price floor is below
the equilibrium price
C. Price ceilings and price floors result in a misallocation of
resources
D. Price floors above equilibrium cause a shortage
2. Which of the following statements about price control is true?
116
LESSON 7: BUSINESS TYPES AND MARKET STRUCTURES
StandardsSSEMI3 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 with regards to number of owners, liability, lifespan, decision making, and taxation.
b. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure (perfect) competition with regards to number of sellers, barriers to entry, price control, and product differentiation.
Key Questions
• What are the four market structures in a mixed-market economy?
• Who has the most control over the price of their product, and why?
• What is an example of an oligopoly?
• What is an example of monopolistic competition?
• What are the three types of business?
Business Organizations
Business Organizations
• Pride of
Ownership
• Unlimited Liability
• Lower Taxes
• Limited Life
• Quicker Decision
Making
• One Owner: Retains All
Profit
• Easiest and Least
Expensive to Start
• Difficult to Raise Money
• More
Management
Expertise-
Specialization
• Decision
Making
Requires
Consensus
• Multiple
Owners: Shares
Profit
• Greater Access
to Financial
Capital
Market Structures
Monopoly Oligopoly Perfect
Competition
Monopolistic
Competition
Least
Competitive
Most
Competitive
Utilities-
Water &
Electricity
Examples:
Automobiles
Telecommunications
Breakfast Cereals
Airlines
Restaurants
Hotels
Hair Salons
Agriculture
Market Stru
ctures
Market Stru
ctures