MICROECONOMICS
• SSEMI1 The student will describe how households,
businesses, and governments are interdependent and
interact through flows of goods, services, and money.
• a. Illustrate by means of a circular flow diagram, the
Product market; the Resource market; the real flow of
goods and services between and among businesses,
households, and government; and the flow of money.
• b. Explain the role of money and how it facilitates
exchange.
• a. Illustrate by means of a circular flow
diagram, the Product market; the Resource
market; the real flow of goods and services
between and among businesses, households,
and government; and the flow of money
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Circular Flow
Market Economy
Mixed Economy
• b. Explain the role of money and how it
facilitates exchange.
– MONEY IS:
• A medium of exchange
• A unit of account
• A store of value
– In our economy, money is the most effective
medium of exchange when purchasing goods.
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• SSEMI2 The student will explain how the Law of Demand, the Law
of Supply, prices, and profits work to determine production and
distribution in a market economy.
• a. Define the Law of Supply and the Law of Demand.
• b. Describe the role of buyers and sellers in determining market
clearing price.
• c. Illustrate on a graph how supply and demand determine
equilibrium price and quantity.
• d. Explain how prices serve as incentives in a market economy.
• a. Define the Law of Supply and the Law of
Demand.
– LAW OF SUPPLY: Higher Price = Higher Quantity
Supplied (direct relationship)
– LAW OF DEMAND: Lower Price = Higher Quantity
Demanded (inverse relationship)
• b. Describe the role of buyers and sellers in
determining market clearing price.
• c. Illustrate on a graph how supply and
demand determine equilibrium price and
quantity.
• d. Explain how prices serve as incentives in a
market economy.
– The price is the amount of money needed to buy a
particular good or service.
– In a market, the price and quantity exchanged are
determined by the interaction of demand and
supply.
– Changes in demand or supply alter the price as
well as the quantity bought and sold at that price.
• 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 supply.
• a. Identify and illustrate on a graph factors
that cause changes in market supply and
demand.
• Changes in SUPPLY or DEMAND (not quantity
supplied or quantity demanded) cause the
supply or demand curve to shift.
– Increase in Supply or Demand: Curve shifts right
– Decrease in Supply or Demand: Curve shifts left
Factors that change demand
• Population
• Income
• Consumer tastes
• Price of complements
• Price of substitutes
• Expectations of a change in
price
Factors that change supply
• Cost of inputs
• Technology
• Government Regulation
– Taxes
– Subsidies
• Expectations of a change in
price
• b. Explain and illustrate on a graph how price
floors create surpluses and price ceilings
create shortages.
• SURPLUS
– Price above equilibrium
– Qd < Qs
• SHORTAGE
– Price below equilibrium
– Qd > Qs
• Price Ceiling
– legally established
maximum price.
– Governments enact
price ceilings when they
fear that the price might
be higher than they
desire it to be.
– Creates a shortage
– Example: rent-control
• Price Floor
– is a legally established
minimum price.
– Governments enact
price floors when they
fear that the price might
be lower than they
desire it to be.
– Creates a surplus
– Examples: farm products
and the minimum wage.
• c. Define price elasticity of demand and
supply.
– elasticity of demand is the way of measuring how
much quantity demanded will change in response
to a change in price.
• SSEMI4 The student will 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.
• b. Explain the role of profit as an incentive for
entrepreneurs.
• c. Identify the basic characteristics of monopoly, oligopoly,
monopolistic competition, and pure competition.
• a. Compare and contrast three forms of
business organization—sole proprietorship,
partnership, and corporation.
Sole Proprietorship
Partnership
Corporation
-Most Common
-Easiest to start
-Unlimited liability
-Two or more owners
-Business is a legal entity,
-Easy to secure funding & risk separate from its owners
is shared
-Most complex to start
-Can sell stock to raise money
• b. Explain the role of profit as an incentive for
entrepreneurs.
– Profit (making money) is the incentive for
entrepreneurs to start new businesses and invent
newer and more cost-effective ways of producing
goods.
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• c. Identify the basic characteristics of monopoly, oligopoly,
monopolistic competition, and pure competition.
Perfect
Competition
Monopolistic
Competition
Oligopoly
Monopoly
# of Sellers
Many
Many
Few (2-4)
One
Variety of
Goods
None
Some
Some
None
Control over
price
None
Some
Some
Total
Barriers to Entry None
Few
High
Complete
Examples
Jeans
Airlines
NFL
Apples