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.
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.
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.
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
Unit II: Microeconomic Concepts
Chapter
Chapter 4
Chapter 5
Chapter 6
Standards
EMI2a,b,c,d, EMI 3a,b,c
EMI2a,b,c,d, EMI 3a,b,c
EMI2a,b,c,d, EMI 3a,b,c

SSEMI1a
SSEMI1b
SSEMI2a
SSEMI2b
SSEMI2c
SSEMI2d
SSEMI3a
SSEMI3b
SSEMI3c
SSEMI4a
SSEMI4b
SSEMI4c
Name:________________________________Class:_______________Instructor:___________________
+
mastery
-
needs improvement
Standard Activity Activity Activity Activity Activity Activity Activity Activity Activity

4: Demand
Vocabulary
FIB Notes
Daily 10
Current Events
Chapter Activity
Written Response
Study Guide
Participation
Total
5: Supply
Vocabulary
FIB Notes
Daily 10
Current Events
Chapter Activity
Written Response
Study Guide
Participation
Total
6: Prices
Vocabulary
FIB Notes
Daily 10
Current Events
Chapter Activity
Written Response
Study Guide
Participation
Total
Grade
/
/
/
/
/
/
/
/
/
Grade
/
/
/
/
/
/
/
/
/
Grade
/
/
/
/
/
/
/
/
/
Test Name
Final Unit II Test
Grade
/100
/100
/100
/100
/100
/100
/100

N a m e : : _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
C H A P T E R 4 – D e m a n d
Section 1 – Understanding Demand
Definition Describe Definition Describe Definition Describe
I think Draw I think Draw I think Draw
Definition Describe Definition Describe Definition Describe
I think Draw I think Draw I think Draw
Definition Describe
I think Draw

Activator – Ch. 4
Three people enter a Mazda dealership all interested in buying a brand new car. All three initially stop to look at the Mazda RX8.
The first person tells the salesperson that they “really like the RX8” but they “don’t have any money today”, and are “saving their money for a purchase within the next 6 months”. The second person tells the dealer that they “have the money to buy”, they “are going to ultimately buy RX8”, but they are shopping various dealerships and are “not willing to buy today”. The third person tells the dealer that they “love the RX8!”, they “have the money” and they “want to buy it today.”
Answer the following based on the above scenario:
1.
Next to each customer, write each of the following that apply to their situation:
1.
Desire to buy
2.
Willingness to buy
3.
Ability to buy
2.
Customer 1 ____________________________________________________________________________________
3.
Customer 2 ____________________________________________________________________________________
4.
Customer 3 ____________________________________________________________________________________
5.
Which customer do think was most appealing to the salesperson, and why? ________________________________
______________________________________________________________________________________________
6.
Which customer would you have helped first, and why? ________________________________________________
______________________________________________________________________________________________
Chapter 4 – The Market Forces of Supply and Demand
Section 1 – Understanding Demand
 Demand – ____________________, ability, and _____________________________________ to buy a good/service o The amount of a product that a ____________________________ (individual) or _____________________
____________________________ (market) will purchase at a given price o In a market system, ___________________________________________ determines the prices of goods based on
_______________________________________________
 Microeconomics – The study of the economic behavior and decision making _________________________________
_______________________________________________________________________________________________
Application Chart – Demand
Make a three column chart that represents 3 items that you want on one side, whether you can afford them or not in the next, and whether you are willing to buy them in the last.
Desired Items Ability/Afford Willingness Demand
1.
2.
3.
The Law of Demand
 Law of Demand – prices are _________________________, consumers will _____________________________; prices are ____________________________, consumers will buy ___________________________. o ____________________________________________ relationship between price and the QD of a product. o Prices __________________________________________________________________________________
The Income Effect
 Income Effect – the change in _____________________________________________________________________
 Consumers feel ___________________________ when prices drop, _____________________________ when prices rise. Both scenarios affect the __________________________________________ of a product.

Substitution Effect
 Substitution Effect – when consumers react to an increase in a good’s price by consuming _____________________
______________________________________________________________________________________________
The Demand Schedule
 Demand Schedule - a table that lists the _____________________________________________________________
 Market Demand Schedule - lists the quantity of a good that _____________________________________________
Application - The Demand Curve
 Demand curve - graphically represents the _______________________________________
• Demand Curve is _________________________________ sloping because of the law of demand
 Plot the demand schedule below, which represents 2004 Florida Marlins avg. sales per game (in thousands)
Price Quantity
$3.00
2.50
2.00
1.50
4
6
0
2
1.00
.50
8
10
.10 12
Application – Shifts of the Demand Curve
Price 2004
$40
35
30
25
20
15
10
0
4
6
8
10
12
14

Section 2 - Shifts of the Demand Curve
Definition Describe Definition Describe Definition Describe
I think Draw I think Draw I think Draw
Definition Describe Definition Describe
I think Draw I think Draw
Section 2 - Shifts of the Demand Curve
 Changes in Demand are reflected as a _______________________________________________________________
 Shifts to the right indicate an__________________________________in demand
 Shifts to the left indicate a __________________________________ in demand
Difference Between A Change in Quantity Demanded and a Change in Demand
 QD - A change in the amount a consumer will purchase _________________________________________________ o Reflected as ________________________________________________
 D – A change in the amount a person will buy as a result of an outside factor (______________________________
____________________________________________________), not having to do with _______________________ o Reflected as a __________________________________

What Causes Shifts in the Demand Curve? ________________________________________________________________
1. Income
 Consumer Income – A consumer’s income affects their ________________________________________________
 __________________________________in income will cause an ____________________________ in consumption
 __________________________________in income will cause an ____________________________ in consumption
 Normal good – income _________________________, demand _________________________
Inferior good – income _________________________, demand rises _______________________
2. Price of Related Goods
 Price of related goods – demand for goods can be _____________________________________________________
 Complements – the demand of one good ____________________________________________________________
 Substitutes – the demand for one good decreases because ______________________________________________
3. Tastes
 Consumer Tastes and Advertising – changes in ________________________________________________________
4. Expectations
 Consumer Expectations – refers to ________________________________________________, as it relates to consumption
 Expectations for the future can ____________________________________________________________________
5. Number of Buyers
 Population – an increase in the ________________________________________________ can cause an
________________________________________________________in the demand for products
 ____________________________________ in population, ____________________________________ in demand
 ____________________________________ in population, ____________________________________ in demand

Shift in Market Demand Curve for SUV’s:
Application – Average sales of SUV’s per month (in thousands)
• Plot the demand schedule below. The graph represents the demand for SUV’s during the early 1990’s. During the late
1990’s SUV’s became increasingly popular in the United States. During the mid 2000’s, gas prices increased nationally to average rates around 5.00 per gallon, which affected the demand for SUV’s around the country.
Price Early 90’s Late 90’s After Gas Hikes
$55 0 2 0
50
45
40
35
30
2
4
6
8
10
4
6
8
10
14
1
2
3
4
6
25 14 20 8
1.
How did the curve change from the early 90’s to the late 90’s? ___________________________________________
2.
What was the cause of the change from the early 90’s to the late 90’s? ____________________________________
3.
What happened to the curve after the gas hikes? ______________________________________________________
Below is a table showing the market demand for greebes, a hypothetical product introduced to spare you the confusion of real world associations. Study the data in the table, and plot the demand for greebes on the axes provided below. Label the demand curve “D,” and answer the questions on the following pages.
Demand for Greebes
Price
$/Greebe
$0.05
$0.10
Q d
(millions)
400
350
$0.15
$0.20
$0.25
$0.30
300
250
200
150
$0.35
100
$0.40 50
Create a Demand Curve using the above information, answer the questions that follow:

The data for demand curve “D” indicate that at a price of #0.30 per greebe, buyers would be willing to buy _______ million greebes. Other things constant, if the price of greebes increased to $0.40 per greebe, buyers would be willing to buy _______ million greebes. Such a change would be called a(n) ( increase / decrease) in (demand / quantity demanded). Other things constant, if the price of greebes decreased to $0.20, buyers would be willing to buy _______ million greebes. Such a change would be called a(n) (increase / decrease) in
(demand / quantity demanded).
The data for demand curve “D” indicate that for a quantity of 150 million greebes, buyers would be willing to offer a maximum “demand price” of $_______ per greebe. Other things constant, if the quantity of greebes were increased to 250 million greebes, buyers would be willing to offer a maximum price of $_______ per greebe.
Now let’s suppose that a dramatic increase in Federal income tax rates reduces the disposable income of greebe buyers. This change in the ceteris paribus conditions underlying the original demand for greebes will result in a decrease in demand, and we would have a new set of data such as that shown in the following table. Study the data in the new table, and plot the new demand curve for greebes on the diagram on page one. Label the new demand curve “D
1
” and then answer the questions below.
Decrease in the Demand for Greebes
Price$ / Greebe Quantity Demanded(Millions)
$0.05
$0.10
$0.15
$0.20
$0.25
300
250
200
150
100
$0.30 50
Create a Demand Curve using the above information, answer the questions that follow:
(Please plot your points on the same graph created with the information provided previously)
Comparing the new demand curve ( D
1
) with the old demand curve (D), we can say that a decrease in the demand for greebes results in a shift of the demand curve to the (right / left). Such a shift indicates that at each of the possible prices shown, buyers are now willing to buy a
(smaller/ larger) quantity, and at each of the possible quantities shown, buyers are willing to offer a
(higher / lower) maximum price.
Now, let’s suppose there is a dramatic increase in people’s “taste” for greebes. This change in the ceteris paribus conditions underlying the original demand for greebes will result in an increase in demand, and we would have a new set of data such as that shown on the following table. Study the data in the new table, and plot this demand for greebes on the diagram on page one. Label the new demand curve “D
2
” and answer the questions below.

Increase in the Demand for Greebes
Price$ / Greebe
$0.20
$0.25
$0.30
$0.35
$0.40
Quantity Demanded(Millions)
350
300
250
200
150
$0.45
$0.50
100
50
Create a Demand Curve using the above information, answer the questions that follow:
(Please plot your points on the same graph created with the information provided previously)
Comparing the new demand curve (D
2
) with the original demand curve (D), we can say that an increase in the demand for greebes results in a shift of the demand curve to the (right / left).
Such a shift indicates that at each of the possible prices shown, buyers are now willing to buy a
(smaller/ larger) quantity, and at each of the possible quantities shown, buyers are willing to offer a
(higher / lower) maximum price.
Now see if you have the point by circling what you think is the one best alternative in each of the following multiple choice questions.
1. Other things constant, which of the following would NOT cause a change in the demand
(shifting the demand curve) for mopeds. a. A decrease in consumer incomes. b. A decrease in the price of mopeds. c. An increase in the price of bicycles. d. An increase in people’s taste for mopeds.
2. Make corrections where necessary. a. an increase in price always causes a decrease in “demand.” b. an increase in price causes an increase in the “demand,” c. an increase in price causes an increase in the “quantity demanded,” d. an increase in prices cause a decrease in the “quantity demanded,”
3. “As the price of domestic automobiles has inched upwards, customers have found foreign
autos to be a better bargain. Consequently, domestic auto sales have been slipping and foreign
auto sales have been moving briskly.” Using only the information in this quotation, and assuming
everything else constant, which of the following best describes this statement? a. A shift in the demand curves for both domestic and foreign automobiles. b. A movement along the demand curves for both foreign and domestic automobiles. c. A movement along the demand curve for domestic autos and a shift in the demand curve for f
foreign autos. d. A shift in the demand curve for domestic autos and a movement along the demand curve for
foreign autos.

Section 3 – Elasticity of Demand
Definition Describe Definition Describe Definition Describe
I think Draw I think Draw I think Draw
Definition Describe Definition Describe
I think Draw I think Draw
Section 3 – Elasticity of Demand
Activator – Chapter 4 Section 3
1.
List 2 items that you would buy less of if the price increased a.
______________________________________________________ b.
______________________________________________________
2.
List 2 items that you would buy more of if the price decreased a.
______________________________________________________ b.
______________________________________________________
3.
List 2 items that you would continue to buy, even if the increased a.
______________________________________________________ b.
______________________________________________________

Section 3 – Elasticity of Demand
 Elasticity of Demand –how consumers will ____________________________ or ____________________________ their quantity demanded
 Measures the __________________________________________________________________________________
 Helps determine how much a ______________________________________________________________________
Elastic Demand
 Elastic – consumption changes _____________________________________________________________________
 A consumer is __________________________________________________________________________________
Inelastic Demand
 Inelastic - changes in price causes a _________________________________________________________________
 Consumers continue to ___________________________________________________________________________
Activity: Create a list of items you would take on a camping trip. Label them E or I for Elastic or Inelastic
Let’s take it to another level!!!!
Determinants of Demand Elasticity
1.
__________________________________________________
• Pepsi/_______________, Butter/_________________________
2.
__________________________________________________
• How much you ____________________________________________
• Table salt versus ____________________________________________
3.
__________________________________________________
• Medicine versus a __________________________________________
4.
__________________________________________________
• Longer time horizon – __________________________________________
• Gas in the short run is ____________________________, but over time _____________________________
Values of Elasticity
 Elasticity has a precise mathematical definition
Percentage change in quantity demanded
Percentage change in price
 Value is less than 1, it is considered _________________________________ o Inelastic – ________________________________________
 Value is greater than one, demand is _________________________________ o Elastic – ________________________________________
 Value is equal to one, demand is __________________________________ o Unitary Elastic – ________________________________________

The Midpoint Method
Price Elasticity = (Q2 – Q1) / [(Q2+Q1) / 2]
(P2 – P1) / [(P2 + P1) / 2]
Application – Elasticity of Ice Cream Cones
Application – Elasticity of Table Salt

Elasticity Application 2 – Insulin
Elasticity Application 3 – Apple

18.
Chapter 4 STUDY GUIDE
Chapter 4 – Demand
Section 1 – Understanding Demand
1.
Demand is defined in economics as _________________________________________________________________
2.
Microeconomics is the ___________________________________________________________________________
3.
The Law of Demand says that _____________________________________________________________________
4.
Based on the law of demand, we can assert that price controls ___________________________________________
5.
How is a change in price reflected on the demand graph? _______________________________________________
6.
Describe the income effect ________________________________________________________________________
7.
Describe the substitution effect ____________________________________________________________________
8.
A table that lists the amount a person is willing to purchase at various price points is known as the
________________________ schedule
9.
A table that lists all people in the market and their willingness to purchase at various price points is a
________________________ demand schedule.
10.
The _______________________ curve is a visual representation of the demand schedule and is plotted on a graph.
11.
A shift to the right indicates a ________________________ in demand, whereas a shift to the left indicates a
________________________ in demand.
Section 2 – Shifts of the Demand Curve
12.
Describe the five determinants of demand: a.
Consumer Income ________________________________________________________ b.
Consumer Expectations ____________________________________________________ c.
Population____________________________________________________________________________ d.
Consumer Tastes and Advertising__________________________________________________________ e.
Price of Related Products________________________________________________________________
Section 3 – Elasticity of Demand
13.
Define Elasticity of Demand ______________________________________________________________________
14.
What is the difference between an inelastic and elastic product?
_______________________________________________________________________
15.
__________________________ would be an example of an elastic product, whereas _________________________ would be an example of an inelastic product.
16.
List the three determinants of elasticity of demand: a.
_____________________________________________________________________________________ b.
_____________________________________________________________________________________ c.
_____________________________________________________________________________________
17.
A product is considered elastic if it has a value greater than ________ and inelastic if it has a value less than ______

Price Per Pack of Soda
Price Per Soda
1.00
2.00
3.00
4.00
Market Quantity
Demanded
250
200
150
100
5.00 50
0
19.
a.
As a result of the law of demand, the curve is _______________________ sloping.
QD b.
What might happen to the demand for soda if the population increased? _________________________
Price Per Pack of Gum
Price Per
Pack of Gum
(cents)
20
QD per week before recession
180
QD after recession
160
30
40
160
140
140
110
50
60
120
100
90
60
70 80 40
80 60 20
0 a.
Which way did the curve shift after the recession? What does this indicate ________________________ b.
What was most likely the cause of this shift?_________________________________________________
20.
Price per online song
.50
QD (in thousands per week) introductory phase
5
QD after first year
10
QD after free P2P sharing
4
Price Per Song
QD
1.00
1.50
4
3
6
4
3
2
2.00 2 3 1
2.50 1 2 0
0 a.
In this example the D2 curve shifted to the _________________________ indicating an _______________ in the demand for online songs.

b.
Which way did the curve shift after free file sharing occurred? ________________________________________ c.
What does a shift in that direction show? _________________________________________________________ d.
In this scenario, the free P2P file sharing would be considered a _______________________________ product.
21.
Intel is trying to determine if they should drop the price of their new chip from $410 to $390. If they drop the price, the sale of their chip increases from 36 to 44 (million chips) per year.
- Create a Demand Schedule and Curve based on the above information.
Price Per Chip
Price of
Chip
QD per year
0 a.
Use the formula to show how you determine elasticity of demand for Intel Chips.
Price Elasticity = (Q2 – Q1) / [(Q2+Q1) / 2]
(P2 – P1) / [(P2 + P1) / 2]
*Inelastic – Demand is < 1
*Elastic – Demand is > than 1
• Q2 _______ - Q1_______ = ______ / Q2 ______+ Q1 _______ / 2 = _______ = ________
• P2 _______ - P1_______ = ______ / P2 ______+ P1 _______ / 2 = _______ = ________
• - Elasticity QD______ / P______ = ________ b.
c.
d.
QD
Did the price change cause an elastic or inelastic response in the QD for Intel Chips? ___________________
Based on the above example, if the firm drops their price by _________%, they will see an increase in sales of
__________%
To determine if this is a good decision for the firm, calculate the total revenue of each price point using the following formula.
- Multiply the first price of the chip by the first QD ______ x _______ = ___________________
- Multiply the second price of the chip by the second QD ______ x _______ = ___________________ e.
f.
Which price point generates the most total revenue? ______________________
Explain why the firm should drop the price point. _____________________________________________
_____________________________________________________________________________________

C h a p t t e r r 5 a n d 6
Activator Chapter 5 Section 1
Scenario: Imagine you are beginning a landscaping business in your neighborhood. One of your neighbors tells you they are willing to pay you $30 a week for your services, which includes mowing their lawn, edging, and weed whacking. You tell them, “It’s a deal!” and agree to mow their lawn 4 times a month. A second neighbor tells you that they will pay you $20 a week for your services. You think to yourself, “Well, it’s not as good a deal as the first neighbor, but I’m just starting out”, and you agree to mow their lawn 2 times a month. The third neighbor you approach tells you that they are willing to pay you
$10 a week for your services. You tell them that you will service their lawn 1 time a month because they are a friend of the family. The 4 th person offers you $5, and you politely decline.
Price For Lawn
Mowing Service
Quantity
Supplied
1.
From left to right, which way is the curve sloping? _______________________________________________
2.
Why do you think it is sloping in that direction? _______________________________________________________
Supply
 Supply – the amount of _______________________________________________________________________ o The amount of a product that ____________________________________________________________
The Law of Supply
 Law of Supply – the ________________________________________ the price offered, the
_____________________________________ the quantity produced by the supplier; the
______________________________________ prices offered, the _____________quantity supplied o Direct (positive) relationship between _____________________________________________________
Two reasons for law of supply:
 Increased Production - Suppliers will _____________________________________________________________
 Market Entry - New firms will ___________________________________________________________________
The Supply Schedule and Curve
• Supply Schedule - a table that lists __________________________________________________________________
• Market Supply Schedule - lists the quantity supplied of a good that _______________________________________
• Supply Curve - A ________________________________________________________________________________

Scenario: You have been producing for a number of months at the same rate in your landscaping business. In fact, many of your neighbors have requested your services. However, you have previously been unable to fulfill their demand for your services because you are still a full time student and you have to share your time running your business with your time at school. However, the past three months of revenue have allowed you to upgrade your lawnmower from a push to a riding lawnmower. You also recently purchased a gas powered weed whacker and edger. This allows you to double your production rate as a result of increased efficiency. Unfortunately, a month into your new production rates gas prices triple. This causes you to have to cut back on production and decrease your supply. Plot the new supply schedules on your supply curve.
Price For
Lawn
Mowing
Service
Original
Quantity
Supplied
Quantity
Supplied
New
Equipment
Quantity
Supplied
Increased
Gas Prices
$30.00
20.00
4
2
10.00 1
5.00 0
Shifts of the Supply Curve
 Changes in supply are reflected on the Supply Graph as a _______________________________________________
 Shifts to the right indicate an ______________________________ in supply
 Shifts to the left indicate a______________________________ in supply
Difference Between A Change in Quantity Supplied and a Change in Supply
 QS - A change in the amount a supplier will produce as a result of a _______________________________________ o Reflected as __________________________________________
 S – A change in the amount a supplier can produce as a result of _________________________________________ o Reflected as a _______________________________________________________

What Causes a Shift? __________________________________
1. Effects of Rising Costs
 Input Prices – the cost of _________________________________________________________________________ o _______________________________ in input prices will cause a __________________________ of production o _______________________________ in input prices will cause incentive to
2. Technology
 Technology – ability to ___________________________________________________________________________ o Increases in ability to produce _______________________________________________________________ o Decrease as a result of _____________________________________________________________________
3. Subsidies
 Subsidy – a government __________________________________________________________________________ o Increases in ability to produce as ____________________________________________________________ o Decrease as a result of _____________________________________________________________________
4. Taxes
 Excise tax – tax on _______________________________________________________________________________ o Increases in ability to produce as ____________________________________________________________ o Decrease ability to produce as _______________________________________________________________
5. Regulation
 Regulation – government intervention in a ___________________________________________________________ o Increases in ability to produce_______________________________________________________________ o Decrease in ability to produce _______________________________________________________________
6. Future Expectations of Prices
 Expectations – refers to the way ___________________________________________________________________ o Negative expectations for the future of a market can cause suppliers to _____________________________ o Positive speculation for the future of a market can cause suppliers to _____________________________
7. Number of Sellers
 Number of sellers – an increase in the number of sellers ________________________________________________
 _____________________________ in sellers, __________________________ in production
 _____________________________ in sellers, __________________________ in production

Application – Average Supply of Specialty Coffee in Southeast Georgia
 Plot the schedule below, which represents the willingness of stores to purchase Coffee.
Price of
Coffee
Early 2000’s Late 2000s Coffee Bean
Increase
$3.00 10 12 6
2.50
2.00
1.50
8
6
4
10
8
6
4
3
2
1.00 2 4 1
.50 0 2 0
In this homework problem, and those that follow, we will assume that the long run supply curve for greebes is “upward sloping.” Study the data in the table below, and plot the supply for greebes on the axes provided. Label the supply curve “S,” and answer the questions on the following pages.
Supply of Greebes
Price$ / Greebe
$0.15
$0.20
Quantity Supplied(Millions)
100
150
$0.25
$0.30
200
250
$0.35 300
Create a Supply Curve using the above information, answer the questions that follow:

The data for supply curve “S” indicates that at a price of $0.25 per greebe suppliers would be willing to offer _______ million greebes. Other things constant, if the price of greebes increased to $0.30 per greebe, suppliers would be willing to offer _______ million greebes. Such a change
6 would be a(n) (increase / decrease) in (supply / quantity supplied).
Other things constant, if the price of greebes decreased to $0.20 per greebe, suppliers would be willing to offer _______ million greebes. Such a change would be called a(n) (increase / decrease ) in (supply / quantity supplied).
The data for supply curve “S” indicates that for a quantity of 200 million greebes, the minimum price acceptable to suppliers is $_______ per greebe. Other things constant, if the quantity of greebes increased to 250 million greebes, the minimum acceptable price would be $_______ per greebe.
Now let’s suppose that there is a dramatic increase in the price of several of the raw materials used in making greebes. This change in the ceteris paribus conditions underlying the original supply of greebes will result in an increase in marginal cost and a decrease in supply, and we would have a new set of data such as that shown in the following table. Study the data in the new table, and plot this supply of greebes on the graph on page five. Label the new supply curve “S
1
” and answer the questions below.
Decrease in the Supply of Greebes
Price$ / Greebe
$0.20
$0.25
Quantity Supplied(Millions)
50
100
$0.30
$0.35
150
200
$0.40 250
Create a Supply Curve using the above information, answer the questions that follow:
(Please plot your points on the same graph created with the information provided previously)
Comparing the new supply curve (S
1
) with the old supply curve (S), we can say that a decrease in the supply of greebes results in a shift of the supply curve to the (right / left) Such a shift indicates that at each of the possible prices shown, suppliers are now willing to offer a
(smaller /larger) quantity, and at each of the possible quantities shown, suppliers require a (higher / lower) minimum price.
Now, to take another example, let’s suppose that there is a dramatic decrease in the price of several of the raw materials used in making greebes. This change in the ceteris paribus conditions underlying the original supply of greebes will result in a decrease in marginal cost and an increase in supply, and we would have a new set of data such as that shown in the following table. Study the data in the new table, and plot this supply of greebes on the graph on page five.

Label the new supply curve “S
2
” and answer the questions below.
Increase in the Supply of Greebes
Price$ / Greebe
$0.10
Quantity Supplied(Millions)
150
$0.15
$0.20
200
250
$0.25
$0.30
300
350
Create a Supply Curve using the above information, answer the questions that follow:
(Please plot your points on the same graph created with the information provided previously)
Comparing the new supply curve (S
2
) with the original supply curve (S), we can say that an increase in the supply of greebes results in a shift of the supply curve to the (right / left) Such a shift indicates that at each of the possible prices shown, suppliers are now willing to offer a
(smaller / larger) quantity, and at each of the possible quantities shown, suppliers require a
(higher/ lower) minimum price.
Now see if you have the point by circling what you think is the one best alternative in each of the following multiple choice questions.
1. Other things constant, which of the following would NOT cause a change in the long run
supply of beef. a. A decrease in the price of beef. b. A decrease in the price of cattle feed. c. An increase in the price of cattle feed. d. An increase in the cost of transporting cattle to market.
2. Correct if necessary. a. a decrease in price always causes a decrease in “supply.” b. a decrease in price always causes an increase in “supply,” c. a decrease in price causes an increase in the “quantity supplied,” d. a decrease in price causes a decrease in the “quantity supplied,”

Activator – Chapter 6 Section 1
Plot the schedule below, which represents the willingness of stores to purchase Tickle Me Elmo (in the millions per month) during the 1996 holiday season.
*Formula for determining Surplus/Shortage, QS - QD
Price QD QS Surplus/Shortage
$30
25
20
0
2
4
13
11
9
15
10
6
10
6
3
5 15 0
Combining Supply and Demand
 Price – the _____________________________________________________________________________________ o A link between ___________________________________________________________________________ o Determines the _________________________________________________________________ to produce
Defining Equilibrium
 Equilibrium – the point of balance where ____________________________________________________________ o _____________ = _______________ o Prices are ___________________________________________
Disequilibrium
 Disequilibrium – occurs when the __________________________________________________________________ o ___________ < _____________ o ___________ > _____________
Excess Demand
 Excess Demand – quantity demanded is _____________________________________________________________ o Shortage – not enough of a product to ________________________________________________________ o ___________ > _____________ o Shortages force prices _____________
Application - The Effects of a Change in Demand
Plot the schedule below, which represents market supply and demand and the effects of a change in supply.
Price
$50
40
30
20
10
5
QD1
0
2
4
6
10
15
QS
13
11
9
6
3
0
QD2
3
5
9
13
17
25

Excess Supply
 Excess Supply – quantity supplied is _________________________________________________________________ o Surplus – ________________________________________________________________________________ o _____________ < _____________ o Surpluses force prices ________________________
Application – The Effects of a Change in Supply
Plot the schedule below, which represents market supply and demand and the effects of a change in supply.
Price QD1 QS QS2
$50
40
30
20
0
2
4
6
13
11
9
6
20
17
15
13
10 10 3 10
5 15 0 3
Law of Supply and Demand o Law of supply and demand – the price of any good
_____________________________________________________ o Shortages/Surpluses are short-lived market conditions
Supply, Demand, and Government Policies
 Price Ceiling – government imposed, legal ____________________________________________________________

New York introduced rent control in the early 1940s as _____________________________________________

A price ceiling causes a ______________________________________________________________________
 Price Floor – government imposed, legal _____________________________________________________________

Minimum wage is a _____________________________________________________

Minimum wage can cause a ____________________________________________________

Application – Price Ceiling
Scenario: the government places a price ceiling on ice cream cones as a result of complaints and lobbying from the Ice-Cream
Eaters of America. The price ceiling is at $2.00 a cone. Graph the following schedule based on the price points and qs/qd.
Price of Ice
Cream
Cones
Quantity
Demanded
Quantity
Supplied
$3 100 100
2 125 75
 The government imposes a price ceiling of $2. Because the price ceiling is ______________ the equilibrium price of $3, the market price equals $2. At this price, ____________ cones are demanded and only ______________ are supplied, so there is a shortage of ________________ cones.
Application – Price Floor
Scenario: the government places a price floor on ice cream cones as a result of complaints and lobbying from the National
Organization of Ice-Cream Makers. The price floor is at $4.00 a cone. Graph the following schedule based on the price points and qs/qd.
Price of Ice
Cream
Cones
Quantity
Demanded
$4 80
Quantity
Supplied
120
3 100 100
The government imposes a price floor of $4, which is above the equilibrium price of $3. Therefore, the market price equals $4.
Because ___________ cones are supplied at this price and only ____________are demanded, there is a surplus of ____________ cones.

A market with a price ceiling
(a) A price ceiling that is not binding (b) A price ceiling that is binding
In panel (a), the government imposes a price ceiling of $4. Because the price ceiling is above the equilibrium price of $3, the price ceiling has no effect, and the market can reach the equilibrium of supply and demand. In this equilibrium, quantity supplied and quantity demanded both equal 100 cones. In panel (b), the government imposes a price ceiling of $2. Because the price ceiling is below the equilibrium price of $3, the market price equals $2. At this price, _____________ cones are demanded and only ___________ are supplied, so there is a shortage of ___________ cones.
Application Price Ceilings and Price Floors
A store sells cheddar cheese by the pound. The schedule reflects the quantity demanded and the quantity supplied for the different prices the cheese could be sold.
$6
5
4
3
2
Answer the following question:
1.
What is the market price? _________
2.
What is the quantity demanded at the market price? _______
3.
What is the quantity supplied at the market price? _________
1
On your graph, draw a line across your graph at the price of $4.00. a.
If the government were to set a price no higher than $4.00,
this would be called a __________________________ b.
Use your answer in (a) to label the line on your graph at the price of $4.00. c.
At a price of $4.00, the quantity demanded would be __________
50 100 150 200 250 300 350 400 450 d.
At a price of $4.00, the quantity supplied would be __________ e.
Is there a surplus or shortage of cheese? _____________
On your graph, draw a line across your graph at the price of $5.50. a.
If the government were to set a price no lower than $5.50, this would be called a _________________ b.
Use your answer in (a) to label the line on your graph at the price of $5.50. c.
At a price of $5.50, the quantity demanded would be _____________ d.
At a price of $5.50, the quantity supplied would be _____________ e.
Is there a surplus or shortage of cheese? ____________________

12
7
8
5
6
2
3
4
0
1
Ch. 6 Section 2 – Costs of Production
1.
What is the marginal product of labor from one laborer
Number of
Workers
Total Output Marginal Product of Labor to two?_______________
2.
What is the marginal product of labor from two laborers to three? ________________
3.
At what number of laborers does the marginal product of labor start to decline? _________________
4.
At what number of laborers does the firm experience negative marginal product of labor? ___________
0
1
2
3
4
0
4
10
17
23
NA
5 28
6 31
7
8
32
31
Marginal Returns
 Increasing marginal returns – Increases in ____________________________________________________________
 Diminishing marginal returns – Additional workers ____________________________________________________
 Negative Marginal Returns – Adding additional workers ________________________________________________
Production Costs
 Fixed costs – a cost that does not __________________________________________________________________
 Variable costs – costs that ________________________________________________________________________
 Total cost – ____________________________________________________________________________________
 Marginal cost – additional cost of producing _________________________________________________________
Application – The Costs of Production
Number of
Workers
Total
Product
Marginal
Product of
Labor
0
7
9
10
11
20
38
62
90
110
129
138
144
148
145
135
1.
At what number of laborers does the firm experience diminishing marginal returns? ______________
2.
At what number of laborers does the firm experience negative marginal returns? ________________

Chapter 5 – Supply
Section 1 – Understanding Supply
1.
Supply is defined in economics as ________________________________________________________________
2.
The Law of supply says that _____________________________________________________________________
3.
Based on the law of supply, we can assert there is a ____________________ relationship between supply and price.
4.
How does supply change based on higher/increased production?
___________________________________________________________________________________________
5.
Why does supply change based on market entry?
___________________________________________________________________________________________
6.
A table that lists the amount a person is willing to supply at various price points is known as the
________________________ schedule.
7.
A table that lists all the firms in a market and their willingness to supply at various price points is a
________________________ supply schedule.
8.
The _______________________ curve is a visual representation of the supply schedule and is plotted on a graph.
9.
A change in price is reflected as ________________________________________________ along the supply graph.
10.
A shift to the right indicates an _________________________________ in supply, whereas a shift to the left indicates a _____________________________________ in supply.
Section 2 – Costs of Production
11.
Positive output per worker added by the firm is known as ________________________________ marginal returns.
12.
When additional workers increase total output, but at a decreasing rate the firm is experiencing
_____________________________________ marginal returns.
13.
A firm experiences _________________________________ returns when the number of outputs decrease as a result of a lack of work and a disruption in the production process.
14.
Describe the difference between a fixed and variable cost
__________________________________________________________________________________________
15.
Provide an example of a fixed cost
__________________________________________________________________________________________
16.
Provide an example of a variable cost
__________________________________________________________________________________________
17.
When you add fixed costs and variable costs together, a firm can determine the
_________________________________________________________________
18.
The cost of producing one more unit of good is known as the
_________________________________________________________________

Section 3 – Changes in Supply
19.
List the seven determinants of supply:
1. _________________________________________________________________
2. _________________________________________________________________
3. _________________________________________________________________
4. _________________________________________________________________
5. _________________________________________________________________
6. _________________________________________________________________
7. __________________________________________________________________
Chapter 6 – Prices
Section 1 – Combining Supply and Demand
20.
The Equilibrium point is __________________________________________________________________________
21.
Disequilibrium occurs when _______________________________________________________________________
22.
If QD > QS then there is ________________________________________________________ for a product.
23.
If QD < QS then there is ________________________________________________________ for a product.
24.
A price ceiling is ________________________________________________________________________________
25.
A price floor is _________________________________________________________________________________
26.
An example of a price ceiling mentioned in your book is ________________________________________________
27.
An example of a price floor mentioned in your book is __________________________________________________
Section 2 – Changes in Market Equilibrium
28.
Explain the difference between a surplus and a shortage ________________________________________________
______________________________________________________________________________________________
29.
If the price of a good is marked above the equilibrium point then a firm will end up with a _____________________
30.
If the price of a good is marked below the equilibrium point then a firm will end up with a _____________________
31.
A shift to the right in the supply curve, with no change in demand, causes the equilibrium price to ______________
32.
A shift to the left in the supply curve, with no change in demand, causes the equilibrium price to _______________
33.
A shift to the right in the demand curve, with no change in supply, causes the equilibrium price to ______________
34.
A shift to the left in the demand curve, with no change in supply, causes the equilibrium price to _______________
Section 3 - The Role of Prices
35.
What role do prices serve in the free market? _________________________________________________________
36.
What are the advantages of prices? _________________________________________________________________
37.
How do prices act as an incentive? _________________________________________________________________
38.
How do prices act as signals? ______________________________________________________________________
39.
Why are prices considered to be flexible? ____________________________________________________________
40.
Why is a price system free? _______________________________________________________________________
41.
How does price relate to a wide choice of goods? ______________________________________________________
42.
When people conduct business without government control, they are operating on the
_________________________________________________________________________
43.
Efficient resource allocation means that
_________________________________________________________________________

44.
Complete the following table and plot the points (columns 1 &2) on the graph.
Number of
Workers
Total Product Marginal
Product of
Labor
210
0 0
180
1 7
2 20
3 40 150
4 65
5 92 120
6 110
7 129
90
8
9
139
135
10 129
60

30

At what number of laborers does the firm experience negative marginal returns? _______________
45.
Graph each the following demand/supply schedules on one demand graph and then answer the questions below:
Price Quantity Quantity Shortage/
Price
Demanded Supplied Surplus
(QS – QD)
1
3
2
5
4
$10
9
8
7
6
9
7
8
5
6
2
3
0
1
4
1
3
2
5
4
10
9
8
7
6
0
0
Q

a.
What is the equilibrium price? ______________ b.
What is the QD and QS at the equilibrium price?_______________ c.
What is the surplus at $6? ______________ d.
What is the shortage at $2 ____________
$10
9
8
7
6
5
4
3
2
1
46.
Graph each the following demand/supply schedules on one demand graph and then answer the questions below:
Price
Price Quantity New Quantity QS-New
Demanded QD Supplied QD
(surplus/ shortge)
3
2
5
4
1
$10
9
8
7
6
7
8
5
6
9
2
3
0
1
4
14
16
18
20
22
4
6
8
10
12
3
2
5
4
1
10
9
8
7
6
0
0 a.
What is the new equilibrium price? ______________ b.
What is the QD and QS at the equilibrium price?_______________ c.
Is there a shortage or a surplus at $6? ___________________
Q d.
What is the new shortage at $2 _______________________
47.
Graph each the following demand/supply schedules on one demand graph and then answer the questions below:
Price
Price Quantity Quantity New QS New QS-
Demanded Supplied QD
(surplus/ shortge)
4
5
6
2
3
0
1
7
8
9
6
5
4
10
9
8
7
3
2
1
8
7
6
12
11
10
9
5
4
3
0
0
Q

a.
What is the new equilibrium price? ______________ b.
What is the QD and QS at the equilibrium price?_______________ c.
What is the new surplus at $6? ___________________ d.
What is the new shortage at $2 ______________________
48.
Graph each the following demand/supply schedules on one demand graph and then answer the questions below: a.
In this example, you have a price ceiling at 2
Price
Price Quantity
Demanded
Quantity
Supplied
4
3
6
5
2
1
10
20
30
40
50
60
50
40
30
20
10
0 0
Q a.
What is the natural equilibrium price? ______________ b.
What is the QS – QD at the price ceiling?_______________ c.
Does the price ceiling cause a shortage or a surplus? _______________
49.
Graph each the following demand/supply schedules on one demand graph and then answer the questions below: a.
In this example, you have a price floor at 5
Price
Price Quantity
Demanded
Quantity
Supplied
6
5
4
10
20
30
50
40
30
3 40 20
2 50 10
1 60 0
0
1.
What is the natural equilibrium price? ______________
2.
What is the QS – QD at the price floor?_______________
3.
Does the price floor cause a shortage or a surplus? ______________
Q

Supply and Demand Review
Event
1. The price of designer clothing increases
2. The price of designer clothing decreases
3. The popularity of Polo brand clothing increases throughout the country
4. A machine is invented that allows suppliers to produce clothing more efficiently/inexpensive
5. Suppliers recognize a willingness by consumers to pay high prices in the market for designer clothing
6. The cost of Polo clothing doubles (what is effect on Hilfiger brand clothing?)
7. As a result of profit motive as an incentive, 10 additional companies jump into the market for designer clothing
8. As a result of bad business, 5 companies drop out of the market for designer clothing
Effect Supply Demand Graph

Microeconomic Concepts Overview
SSEMI1 The student will describe how households, businesses, and governments are interdependent and interact through flows of goods, services, and money. (pg. 30) a.
Illustrate by means of a circular flow diagram, the Product market; the Resource (factor) market; the real flow of goods and services between and among businesses, households, and government; and the flow of money.
Circular Flow Model
Important points:
1.
The economy consists of two sectors: households and firms.
2.
The product market is where consumers go to buy goods and services and firms go to sell.
3.
The factor market represents the market where firms hire and households bring their f.o.p., namely labor.
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.
1) Law of Supply (pg. 101) – as prices rise, producers will increase production, as the fall they will decrease production.
2) Law of Demand (pg. 79) – as prices fall, consumers will purchase more, as they increase they purchase less. b.
Describe the role of buyers and sellers in determining market clearing price (equilibrium price) (pg. 125)
Consumers’ purchases indicate to the supplier what to produce and how much. Where there is balance in the
QD and QS will be the market clearing price/equilibrium price. c.
Illustrate on a graph how supply and demand determine equilibrium price and quantity (pgs. 125 – 131).

Important points:
Price of the item on the y – axis (differs, but always the price of the item)
Quantity of item on x (this is where you can tell what is being sold)
Make sure you can differentiate between a change in Demand and Supply (shift – things not having to do with price change of the actual product) and change in quantity demanded and supplied (movement along because of price change)
Increase in D/S shift to the right
Decrease in D/S shift to the left
In panel (a), there is a surplus. Because the market price of $2.50 is above the equilibrium price, the quantity supplied
(10 cones) exceeds the quantity demanded (4 cones).
Suppliers try to increase sales by cutting the price of a cone, and this moves the price toward its equilibrium level.
In panel (b), there is a shortage. Because the market price of $1.50 is below the equilibrium price, the quantity demanded (10 cones) exceeds the quantity supplied (4 cones).
With too many buyers chasing too few goods, suppliers can take advantage of the shortage by raising the price.
Hence, in both cases, the price adjustment moves the market toward the equilibrium of supply and demand d.
Explain how prices serve as incentives in a market economy (pg. 140) – high prices are a signal for suppliers to increase production and for consumers to buy less. Low prices are a signal for consumers to buy and suppliers to cut back on production

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.
Determinants of Demand (pgs. 86 – 88):
Consumer Income
Income goes up, consumers will buy more shifting demand to the right. Goes down, consumers will buy less shifting demand to the left.
Consumer
Expectations
If consumers think that prices, economy, technology, etc., will change in the future this will have an effect on their consumption today.
What Causes a Shift in Demand?
Population Consumer Tastes and
Advertising
Population increases the number of consumers and can shift demand to the right. Decreases shift to the left
Consumer’s change over time the things that they want. As they change their tastes, their demand shifts to the right or the left
Price of Related Goods
Complementary and
Substitute items can have an effect on what consumers will purchase and increase the demand for products.
Determinants of Supply (pgs. 116 – 120):
Effects of Rising
Costs
Input costs can have a major effect on the production and supply of goods and services.
Gas prices can limit the services of a landscaper or paper delivery person.
Technology
Increases in the ability to produce because of technological advances can shift the supply curve to the right.
Breakdowns in technology can shift it to the left.
Subsidies
Government payments to firms can act as an incentive to produce more, which can affect supply. If government removes subsidies the curve will shift left.
What Causes a Shift in Supply?
Taxes
Government taxation towards firms can act as an incentive to produce, which can affect supply.
If government removes taxes the curve will shift left, increases shift right.
Future
Expectations
How suppliers view the future of the economy will affect their production of inventory today. If they think the economy is strong they will increase production today.
Vice versa. a.
Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages.
Number of
Suppliers
Firms increase whenever their profit is to be made. They decrease whenever profit is reduced. Both will shift the curve to the right or the left.
Price floors are a legal minimum that a firm can pay for a good or service and can cause a surplus. Minimum wage is a good example of a price floor.
Price ceilings are a legal maximum that a firm can charge for a good or service and can lead to shortages. Rent ceilings and price gouging are good examples.

b.
Define price elasticity of demand and supply
Elasticity of demand (pg. 90) – is the responsiveness of the consumer to a price change in terms of quantity demanded. If there is a big response, then it is considered elastic; small inelastic.
Elasticity of supply (pg. 104) - is the responsiveness of the firm to a price change in terms of quantity supplied. If there is a big response, then it is considered elastic; small inelastic.
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 (pgs.
185 – 200).
Three Major Economic Systems a.
Market. This is also called a capitalistic or free-market system. In a market system, private individuals and firms control all resources and the price and quantity of all goods are determined by the interaction of demand and supply in unrestricted, open markets. Ownership of property and goods is determined in the private sector and the government does nothing to interfere with any market. Instead, this system relies on the belief that a market system naturally leads to efficient results (called the “invisible hand”), which theoretically correct any inequalities in resource allocation. Adam Smith used the phrase “invisible hand” in his 1776 book entitled Wealth of Nations. Even though his book is as old as the United States, the theories he proposes are still relevant in today’s economy. The United States is very market-oriented, but it is not a purely capitalistic system. One problem with market economies is that the accumulation of wealth can be uneven. Under this system some people might become very rich while others might remain poor. In the United States the government intervenes in the economy so that there is a mechanism to take care of the poor. Poverty, however, is not the only problem that may emerge if the government is completely uninvolved in markets. Other problems with unregulated activities include the elimination of competition (as monopolies would be free to exist and expand), inefficient public services, and outright theft. b.
Command. A command economy is the opposite of a market economy. In this case the government commands all markets, determining what to produce, how to produce, and for whom to produce. Centralized planning committees take into account all the resources a nation has to offer (people, land, capital), and then set up an economic system to produce this predetermined mixture of goods and services. Since the government is in charge of everything, citizens should all receive equal amounts of basic goods and services. In theory, this means that there should be no problems with high unemployment or poverty. In a command economy, the government is supposed to provide for its citizens.
A command economy may work in a simple society with only a small number of people. Yet today’s economies are often too complex for a committee to decipher. For this reason, command economies often produce a set of goods and services that is different from what its population really wants, leading to shortages of needed goods and surpluses of others. Also, since there is no private ownership, people have little incentive to work hard. Because the government manages all basic economic decisions in a command economy, personal liberties and freedom are not as great as they are in a market economy. The former USSR was an example of a command-dominated economy. The fact that this country collapsed economically has led many economists to question the long-term viability of command economies. c.
Traditional. A traditional economy maintains a status quo, deciding that if something worked for one generation, it can work for the next as well. The static nature of a traditional economy can allow it to continue for long periods, but its inability to change can also stifle progress and economic growth. The global economy has rapidly changed over the past hundred years and this has left many traditional economies far behind.

d.
Mixed. While these three systems describe theoretical concepts of how an economy might function, in the real world most economies blend two (or even all three) of these systems. For instance, while China is considered a command economy, they have rapidly begun to incorporate many aspects of a market structure into their economy. Likewise, while the United States is considered to have one of the most capitalistic economies in the world, the government still intervenes in some markets. Therefore, there is a fourth economic system known as a Mixed economy. This is simply a way of naming an economy that incorporates aspects from different economic systems. b.
Explain the role of profit as an incentive for entrepreneurs (pgs. 52-53) – profit is the primary goal of any entrepreneur. It exists most plainly in a market-style economy and is the driving force for a capitalist system. c.
Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.
1) Monopoly (pg. 156) a.
One firm b.
Complete barrier to entry c.
Total control over price d.
One product
2) Oligopoly (pg. 169) a.
2-3 firms b.
High barrier to entry c.
Control majority of output d.
Similar/identical products
3) Monopolistic Competition (pg. 166) a.
Many Firms b.
Few artificial barriers to entry c.
Slight control over price d.
Differentiated products
4) Perfect (Pure) Competition (pg. 151)
Four Conditions of Perfect (Pure) Competition: a.
Many Buyers and Sellers b.
Identical Products c.
Informed Buyers and Sellers d.
Free Market Entry and Exit