Unit 3: Microeconomics

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# Unit 3: Microeconomics - PowerPoint PPT Presentation

Unit 3: Microeconomics. 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 . .

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Unit 3: Microeconomics

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 price elasticity of supply.

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.

Increase Demand

Price

Decrease

Demand

Demand

Quantity

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 supplyand demand.

Supply

Increase in Cost of production

Decrease

Supply

Price

Decrease in Cost of Production

Increase Supply

Quantity

• It provides perverse incentives, causing a shortage.
• Helps the Consumer
• Ceiling, below, shortage(CBS)

A Price Floor is a minimum legal price ABOVEthe equilibrium

• It provides perverse incentives, causing a surplus.
• Helps the Producer
• Floor, above, surplus (FAS)

Supply

5

4

Price Floor

Price

3

Equilibrium

2

Price Ceiling

1

Demand

1

2

3

4

5

Quantity

Price controls (ceiling)
• Assume that a market is in equilibrium and there is no change in supply or demand; relative scarcity has not changed.
• A government sets a legal price below the equilibrium (price ceiling)
• Suppliers will want to supply (more or less).
• There is a (surplus or shortage).
• Rent controls, doctors, prescription drugs
Price controls (floor)
• Assume that a market is in equilibrium and there is no change in supply or demand; relative scarcity has not changed.
• A government sets a legal price above the equilibrium (Price Floor)
• Suppliers will want to supply (more or less).
• There is a (surplus or shortage).
• Minimum wage, agricultural price supports

Unit 3: Microeconomics

SSEMI3 The student will explain how markets, prices, and competition influence economic behavior.

• c. Define price elasticity of demand and price elasticity of supply.

Demand Inelasticity – demand that is not sensitive to price change

• Demand Elasticity – demand is sensitive to price change

Supply Inelasticity – firms find it hard to change production in a given time period.

Supply Elasticity – producers can increase output without a rise in cost or a time delay

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