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.
Determinants of Demand
Change in Consumer tastes/preferences
Change in the number of buyers
Change in consumer incomes
Change in the prices of complementary and substitute goods
Change in consumer expectations
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
Determinants of Supply
•Change in Resource Prices (Input Prices)
•Change in Technology
•Change in Taxes or Subsidies
•Change in producer expectations
•Change in number of suppliers
•Change in exogenous variables (bad weather,Terrorism, etc)
•BOTTOMLINE ON SUPPLY CURVE SHIFTS
–Anything that increases the cost of production decreases supply
–Anything that decreases the cost of production increases 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.
Supply
Price
Increase in Cost
of production
Decrease
Supply
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 ABOVE the 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
Quantity
4
5
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)
• Buyers will want to buy (more or less).
• 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)
• Buyers will want to buy (more or less).
• 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