HGov APMacro: Practice Graphing Changes in Equilibrium


Learning Target: Explain how competition among sellers leads to lower prices and impacts production and how competition among buyers increases prices and allocates goods and services only to those who can afford them.

A market moves to a new equilibrium when there is a shift in either supply (STORES) or demand (TOESIS) which changes the equilibrium price and quantity.

Demand Shifts

 

A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service. A change in demand is a shift in the curve whereby more or less is demanded at every price. Changes in preferences incomes, expectations, population, or the prices of complementary or substitute goods will cause a change in demand.

Demand increases = price increases and quantity increases
Demand decreases = price decreases and quantity decreases
 

 

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Supply Shifts

 

A change in quantity supplied is a movement along the supply curve and can be caused only by a change in the price of the good or service. A change in supply is a shift of the curve whereby more or less is supplied at every price. A change in government action, technology, in production costs, expectations, or in the number of sellers (firms) will cause a change in supply.

Supply increases = price decreases and quantity increases
Supply decreases = price increases and quantity decreases

 

 

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HGov APMacro: Price Floors and Ceilings


Learning Target: Explain the causes and effects of shortages, surpluses, and government enforced price controls.

 

price floor_price ceiling
Price floors are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market with too low of a price and producers deserve some assistance. Price floors are an issue when they are set above the equilibrium price. When they are set above the market price then there will be an excess supply or a surplus. Producers will produce the larger quantity where the new price intersects their supply curve. Consumers will not buy that many goods at the higher price and so those goods will go unsold. Producers can gain as a result of this policy. Consumers will lose with this kind of regulation as some people are priced out of the market and others have to pay a higher price than before.

Price ceilings are maximum prices set by the government for goods and services that they believe are being sold at too high of a price and consumers need some help purchasing them. Price ceilings become a problem when they are set below the market equilibrium price. When the ceiling is set below the market price there will be excess demand or a supply shortage. Producers won’t produce as much at the lower price while consumers will demand more because the goods are cheaper. Demand will outstrip supply so there will be a lot of people who want to buy at this lower price but cannot. Producers are harmed as their surplus is hit with a reduction in the number of firms willing to take the lower price and those who remain in the market have to take a lower price. The shortage of goods can lead to consumers having to line up to get the good, government rationing, and even the development of a black market dealing with the scarce goods.


Homework:
Read Chapter 3 pages 57-61

HGov APMacro: Market Equilibrium


Learning Target: Explain how supply and demand represent economic activity.

market-equilibrium-l3fig26
In the real world, demand and supply operate together. As the price of a good or service goes down, the quantity demanded rises and the quantity supplied falls. As the price goes up, the quantity demanded decreases and the quantity supplied increases. The quantity demanded and the quantity supplied meet at the equilibrium price. At this price, the quantity supplied by the sellers is the same as the quantity demanded by the buyers. Put the demand and supply curves on one graph and the point where the two curves intersect is the equilibrium point.

shortage v surplus D-S graph
Demand and supply interact to drive prices for goods and services to the equilibrium level. The equilibrium price is also known as the market clearing price or the “right” price. Disequilibrium occurs when prices are set above or below the equilibrium price. When prices are too low, excess demand leads to shortages. When prices are too high, excess supply leads to surpluses.

One of the benefits of the market economy is that when it operates without restrictions, it eliminates shortages and surpluses. Whenever shortages occur, the market ends up taking care of itself and the price goes up to eliminate the shortage. Whenever surpluses occur, the market again ends up taking care of itself and the price falls to eliminate the surplus.

market_equilibrium_11b
A market moves to a new equilibrium when there is a shift in either supply (STORES) or demand (TOESIS) which changes the equilibrium price and quantity.

A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service. A change in demand is a shift in the curve whereby more or less is demanded at every price. Changes in preferences incomes, expectations, population, or the prices of complementary or substitute goods will cause a change in demand.
Demand increases = price increases and quantity increases
Demand decreases = price decreases and quantity decreases

A change in quantity supplied is a movement along the supply curve and can be caused only by a change in the price of the good or service. A change in supply is a shift of the curve whereby more or less is supplied at every price. A change in government action, technology, in production costs, expectations, or in the number of sellers (firms) will cause a change in supply.
Supply increases = price decreases and quantity increases
Supply decreases = price increases and quantity decreases


Homework:
Read Chapter 3 pages 53-57

HGov-APMacro: Supply and Changes in Supply


Learning Target: Explain how supply represent economic activity and describe the factors that cause supply to shift.

Supply, like demand, is another important concept. Supply is defined as the quantities of output that producers will bring to market at each and every price. Like demand, supply can be presented in the form of a supply schedule, or graphically as a supply curve. Individual producers have their own supply curves, and the market supply curve is the sum of individual supply curves.

The Law of Supply states that more output will be offered for sale at higher prices and less at lower prices. A change in quantity supplied is represented by a movement along the supply curve, whereas a change in supply is represented by a shift of the supply curve to the left or right.

Supply elasticity is a measure of how responsive producers are to change in price. Supply elasticity is influenced by such factors as the availability and mobility of inputs, a producer’s storage capacity, and the time needed to adjust to a price change. A producer whose supply is elastic will likely respond to an increase in price with an increase in quantity supplied. A producer whose supply is inelastic is unable to respond to changes in price.

A supply curve shows all the prices and quantities at which producers are willing and able to sell a good or service. Producers want to sell more at a higher price and less at a lower price.

Changes in supply, STORES, are caused by changes in: Subsidies or taxes (government action), Technology/productivity, Other events or natural disasters, Resource costs, Expectation of change in future prices (profit), and Size of the producer market. Supply elasticity describes how producers will change the quantity they supply in response to a change in price.

A supply curve is the graph that shows the relationship between price and quantity. There is a difference between a change in supply and a change in quantity supplied. A change in quantity supplied is a movement along the supply curve and can be caused only by a change in the price of the good or service. At a lower price, a smaller quantity is supplied. A change in supply is a shift of the curve whereby more or less is supplied at every price. A change in technology, in production costs or in the number of sellers (firms) will cause a change in supply. When a business wants to expand, it has to consider the law of diminishing returns to decide how much expansion will help the business.


Homework:
Read McConnell & Brue Chapter 3 pages 50-53

HGov APMacro: Graphing Demand


Learning Target: Explain how demand represent economic activity and describe the factors that cause demand to shift.

A demand curve shows all the prices and quantities at which consumers are willing and able to purchase a good or service. The law of demand states that consumers will want to buy more at a lower price and less at a higher price.

There is a difference between a change in demand and a change in quantity demanded.

A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service. At a lower price, a larger quantity is demanded. A change in demand is a shift in the curve whereby more or less is demanded at every price. Changes in preferences incomes, expectations, population, or the prices of complementary or substitute goods will cause a change in demand.

Graphing practice:

  • read a headline
  • identify the change
  • is it a slide or a shift
  • is it an increase or decrease
  • draw and properly label the change on a demand graph

HGov-APMacro: Change in Demand


Learning Target: Describe the factors that cause demand to shift.


There is a difference between a change in demand and a change in quantity demanded. A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service. At a lower price, a larger quantity is demanded. A change in demand is a shift in the curve whereby more or less is demanded at every price. 

There are a number of factors that will cause demand to either increase or decrease. These factors, TOESIS, are called the determinants of demand: changes in Tastes and preferences, Other complementary goods & services, Expectation of future price change (costs), Size of consumer market, Income, and Substitute goods & services. A change in demand for a particular item shifts the entire demand curve to the left or right.

A demand curve shows all the prices and quantities at which consumers are willing and able to purchase a good or service. The law of demand states that consumers will want to buy more at a lower price and less at a higher price.

There is a difference between a change in demand and a change in quantity demanded.

A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service. At a lower price, a larger quantity is demanded. A change in demand is a shift in the curve whereby more or less is demanded at every price. Changes in preferences incomes, expectations, population, or the prices of complementary or substitute goods will cause a change in demand.


Homework:
Answer Chapter 1 Production Possibilities Question
Read McConnell & Brue Chapter 3 Demand pages 45-50

HGov-APMacro: Demand


1 demand-wordcloud
Learning Target: Explain how demand represent economic activity.

In a market economy, buyers and sellers set prices. Demand is the amount of something that consumers are willing and able to buy at various prices. Demand does not always stay the same and can be determined by a demand schedule, which shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.

The Law of Demand states that people will buy more of a product at a lower price than they will buy at a higher price, if nothing else changes. Real income, possible substitutes, and diminishing marginal utility help explain the inverse relationship between price and quantity demanded. Demand does not always stay the same.

A demand curve is the graph that shows the relationship between the price of an item and the quantity demanded. A change in the quantity demanded is a result of a change in price.

Demand elasticity is a measure of how responsive consumers are to changes in price. Demand elasticity is influenced by such factors as the availability of substitutes, the product’s price relative to income, whether the product is a necessity or a luxury, and the time needed to adjust to a price change. For elastic demand, a rise or fall in price of a good greatly affects the amount people are willing to buy. Demand is inelastic if a change in price does not result in a substantial change in the quantity demanded. Consumers are not flexible and will purchase the item no matter what it costs.