Chapter 4: Markets in Action
LEARNING OBJECTIVES
#1 - Understand how an increase or decrease in the demand curve or supply curve changes the
equilibrium price and quantity.
Step 1
Read the section in your textbook titled “Changes in Market Equilibrium.” After reading
this section, you should be able to use a graph and describe changes in market
equilibrium.
Step 2
Watch the Graphing Workshop “See It!” tutorial titled “Market Equilibrium.” Study
how changes in the demand curve and supply curve affect the equilibrium prices and
quantity of milk.
Step 3
Create a new graph at the Graphing Workshop “Try It!” exercise titled “Market
Equilibrium.” This exercise illustrates how a change in the demand curve or supply curve
establishes a new market equilibrium price and quantity.
Step 4
Play the “Causation Chains Game” titled “The Effect of Shifts in Demand on Market
Equilibrium.”
Step 5
Play the “Causation Chains Game” titled “The Effects of Shifts in Supply on Market
Equilibrium.”
Step 6
Listen to the “Ask the Instructor Video Clip” titled “What Factors Affect the Auction
Price of Your House?” You will learn demand and supply factors that affect the price of
a house.
Step 7
Listen to the “Ask the Instructor Video Clip” titled “Why Do Some Prices Adjust More
Slowly?” You will learn how equilibrium prices adjust in the market for stocks and
nurses.
Step 8
Read the EconNews article titled “Can You Help Out Economics Ph.D.’s Who Are Down
on Their Luck?” This article describes how supply and demand curves affected Ph.D.
salaries.
The Result
By following these steps, you have learned that the equilibrium price and quantity change
as a result of shifts in either the demand or supply curves.
#2 - Explain the impact of a price ceiling and a price floor set in a market by the government.
Step 1
Read the section in your textbook titled “Can the Law of Supply and Demand Be
Repealed?” After reading this section, you should be able to use a graph and describe the
effects of a price ceiling or a price floor.
Step 2
Read the Graphing Workshop “Grasp It!” tutorial titled “Price Controls.” This exercise
uses a slider bar to demonstrate the impact of rent controls (price ceiling) and the
minimum wage (price floor).
Step 3
Create a new graph at the Graphing Workshop “Try It!” exercise titled “Price Controls.”
This exercise illustrates the impact of price controls on the market for gasoline.
Step 4
Play the “Causation Chains Game” titled “Rent Control.”
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Step 5
Play the “Causation Chains Game” titled “The Minimum Wage.”
Step 6
Listen to the “Ask the Instructor Video Clip” titled “Do the Terms ‘Shortage’ and
‘Scarcity’ Mean the Same Thing?” You will learn that price controls cause shortages.
Step 7
Read the EconDebate titled “Does an Increase in the Minimum Wage Result in a High
Unemployment Rate?” This article describes the impact of the minimum wage using
supply and demand analysis.
Step 8
Read the EconDebate titled “Time to End Rent Control in New York.” This article
describes the debate over rent control in New York City.
The Result
By following these steps, you have learned that a price ceiling or a price floor set by
government can cause a shortage or surplus to persist in the market.
#3 - Describe what is meant by market failure and how government attempts to correct market
failure.
Step 1
Read the section in your textbook titled “Market Failure.” After reading this section, you
should be able to explain different types of market failure.
Step 2
Read the Graphing Workshop “Grasp It!” exercise titled “Externalities.” This exercise
uses a slider bar to demonstrate the concept of negative and positive externalities.
Step 3
Create a new graph at the Graphing Workshop “Try It!” exercise titled “Externalities.”
This exercise illustrates the market for gasoline and the impact of air pollution.
Step 4
Listen to the “Ask the Instructor Video Clip” titled “How Does Government Affect the
Economy?” You will learn how pollution and solutions to pollution affect the
equilibrium and quantity of a good.
Step 5
Listen to the “Ask the Instructor Video Clip” titled “What Does Barbed Wire Have to
Do with Externalities?” You will learn to use the concept of externalities to explain the
conflict between ranchers and farmers.
Step 6
Listen to the “Ask the Instructor Video Clip” titled “What Is the Meaning of Public
Goods?” You will learn the difference between public and private goods.
Step 7
Listen to the “Ask the Instructor Video Clip” titled “How Do Educational Vouchers
Relate to Market Structure?” You will learn how vouchers can be used for school
choice.
Step 8
Read the EconDebate titled “Do School Vouchers Improve the Quality of Education?”
This article describes the history and arguments concerning using educational vouchers.
The Result
By following the steps above, you have learned that external costs and benefits cause an
overallocation or underallocation of resources.
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