Take Out Graphing Worksheet From Yesterday ■Objective: Practice single and double shifts of the supply and demand curve to find the new market equilibrium price. ■TE Skill: C-5 Demonstrate understanding of concept TEST ON MONDAY

Lighting Practice Round ■Each half of the room is a team ■Each team will send one member up at a time to the white board ■They will have one minute to draw the market for each event and show the shift of the curve, as well as the new equilibrium ■You may support your team member from your seat ■If one team finishes before the other-they get the point! ■A different person from each team will come up every time ■The side that win can earn an extra point if they can correctly name the shifter involved

PRICE OF RUBBER INCREASES DRAMATICALLY Athletic Shoe Market

MOVIE INCREASES POPULARITY OF ATHLETIC SHOES Athletic Shoe Market

PRICE OF SPORTS SANDALS DROPS DRASTICALLY Athletic Shoe Market

TWO NEW ATHLETIC SHOE COMPANIES ENTER THE MARKET Athletic Shoe Market

CONSUMERS WORRY PRICES OF ATHLETIC SHOES MAY INCREASE NEXT MONTH Athletic Shoe Market

INSECTS KILL HALF THE WORLD’S TOMATO CROP Tomato Market

RECESSION HITS- MANY CONSUMERS LOSE JOBS Movie Ticket Sales Market

PRICE OF COMPUTER CHIPS TUMBLES (NEEDED TO MAKE COMPUTERS) Computer Market

PRICE OF SALMON SKYROCKETS Sea Bass Market

GOVERNMENT PLACES EXCISE TAX ON CIGARETTES TO DISCOURAGE SMOKING Cigarette Market

PRICE OF DVD PLAYERS PLUMMETS DVD Market

NEW, MORE EFFICIENT ASSEMBLY LINE TECHNOLOGY INTRODUCED Automobile Market

MCDONALD’S OPENS UP 3 NEW LOCATIONS Big Mac Market

Four Single Shifts ■Memorize 1.Demand, then P, and Q 2.Demand, then P, and Q 3.Supply, then P, and Q 4.Supply, then P, and Q

Dual Shifts-When both curves move D S P ? Q D S P Q? D S P Q? D S P ? Q

To Sum Up: ■If Demand and Supply are moving together (either increasing or decreasing), PRICE will be unknown ■If Demand and Supply are moving opposite each other, QUANTITY will be unknown *We have unknowns because we do not know by how much the curve is shifting

CHANGES IN BOTH SUPPLY AND DEMAND If supply and demand decrease by the same amount, price will be unchanged and the quantity will decrease.

CHANGES IN BOTH SUPPLY AND DEMAND If supply decreases less than demand, price will decrease and quantity will decrease.

CHANGES IN BOTH SUPPLY AND DEMAND If supply decreases more than demand, price will increase and quantity will decrease.

CHANGES IN BOTH SUPPLY AND DEMAND If supply increases and demand decreases, the price will decrease and the quantity will not change.

Price ($) E1 S0S0 Quantity of Video Games (thousands) 0 Qe1 Qe D0D0 Increase in Demand D1D1 Pe1 Pe S1S1 E P increase Q same S1S1 E1 S1S1 E1E1

Practice ■Take a worksheet from the front to practice double shifts. There will also be examples of single shifts

Government Policies ■ Price controls –Price ceiling: a legal maximum on the price of a good or service. Example: rent control. –Price floor: a legal minimum on the price of a good or service. Example: minimum wage.

EXAMPLE 1: The Market for Apartments Eq’m w/o price controls P Q D S Rental price of apts $ Quantity of apartments

How Price Ceilings Affect Market Outcomes A price ceiling above the equilibrium price is not binding – it has no effect on the market outcome. P Q D S $ Price ceiling $1000

How Price Ceilings Affect Market Outcomes The equilibrium price ($800) is above the ceiling and therefore illegal. The ceiling is a binding constraint on the price, and causes a shortage. P Q D S $800 Price ceiling $ shortage

EXAMPLE 2: The Market for Unskilled Labor Equilibrium w/o price controls W L D S Wage paid to unskilled workers $4 500 Quantity of unskilled workers

How Price Floors Affect Market Outcomes W L D S $4 500 Price floor $3 A price floor below the equilibrium price is not binding – it has no effect on the market outcome.

How Price Floors Affect Market Outcomes W L D S $4 Price floor $5 The equilibrium wage ($4) is below the floor and therefore illegal. The floor is a binding constraint on the wage, and causes a surplus (i.e., unemployment) labor surplus

Price floors & ceilings 38 Q P S 0 The market for hotel rooms D Determine effects of: A. $90 price ceiling B. $90 price floor C. $120 price floor

Q P S 0 The market for hotel rooms D A. $90 price ceiling 39 The price falls to $90. Buyers demand 120 rooms, sellers supply 90, leaving a shortage. shortage = 30 Price ceiling

Q P S 0 The market for hotel rooms D B. $90 price floor 40 Eq’m price is above the floor, so floor is not binding. P = $100, Q = 100 rooms. Price floor

Q P S 0 The market for hotel rooms D C. $120 price floor 41 The price rises to $120. Buyers demand 60 rooms, sellers supply 120, causing a surplus. surplus = 60 Price floor

Effects of Price Controls ■Prices are the signals that guide the allocation of society’s resources. This allocation is altered when policymakers restrict prices. ■Price controls are often intended to help the poor, but they often hurt more than help them: –The min. wage can cause job losses. –Rent control can reduce the quantity and quality of affordable housing.