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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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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.

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.

Increase in Cost of production

Decrease

Supply

Price

Decrease in Cost of Production

Increase Supply

Quantity

A Price Ceiling is a maximum legal price BELOW the equilibrium.

• 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)

5

4

Price Floor

Price

3

Equilibrium

2

Price Ceiling

1

Demand

1

2

3

4

5

Quantity

• 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

• 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

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

http://www.tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-supply.html