1. AP Week 5 Supply and Demand Government involvement
Ceilings and floors, subsidies, min. wage

2. Monday
Be able to explain the problems worked over the weekend on analyzing supply and demand shifters. Be able to explain what happened to the price and quantity as a review, then be able to explain government involvement and what a price control is as well as a subsidy, be able to draw a price ceiling and a price floor.
Be able to read the information and apply economic thinking to determine what is happening first, what it will impact (supply or demand) which way it will shift and the consequences.
EQ: what is a ceiling? Floor? Price controls? Subsidies?

3. Unit 2: Supply, Demand, and Consumer Choice

4. REMEMBER THE STEPS!

5. Government Involvement
#1-Price Controls: Floors and Ceilings #2-Import Quotas #3-Subsidies #4-Excise Taxes

6. #1-PRICE CONTROLS
Who likes the idea of having a price ceiling on gas so prices will never go over $1 per gallon?

7. To have an effect, a price ceiling must be below equilibrium
Maximum legal price a seller can charge for a product.
Goal: Make affordable by keeping price from reaching Eq.
To have an effect,
a price ceiling must be
below equilibrium P
Gasoline S $5 4 3 2 1
Does this policy help consumers?
Result: BLACK MARKETS
Price Ceiling
Shortage
(Qd>Qs) D o Q 7

8. To have an effect, a price floor must be above equilibrium
Minimum legal price a seller can sell a product.
Goal: Keep price high by keeping price from falling to Eq.
To have an effect,
a price floor must be
above equilibrium P
Corn S $ 4 3 2 1
Surplus
(Qd<Qs)
Price Floor
Does this policy help corn producers? D o Q 8

9. Practice Questions
1. Which of the following will occur if a legal price floor is placed on a good below its free market equilibrium?
Surpluses will develop
Shortages will develop
Underground markets will develop
The equilibrium price will remain the same
The quantity sold will increase
2. Which of the following statements about price control is true?
A. A price ceiling causes a shortage if the ceiling price is above the equilibrium price
B. A price floor causes a surplus if the price floor is below the equilibrium price
C. Price ceilings and price floors result in a misallocation of resources
D. Price floors above equilibrium cause a shortage
Answers: D C

10. Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and producers surplus P S CS Pc PS D Qe Q

11. Are Price Controls Good or Bad? DEADWEIGHT LOSS The Lost CS and PS.
To be “efficient” a market must maximize consumers and producers surplus P S CS
Price FLOOR
DEADWEIGHT LOSS The Lost CS and PS.
INEFFICIENT! Pc PS D
Qfloor Qe Q

12. Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and producers surplus P S CS Pc PS D Qe Q

13. Are Price Controls Good or Bad? DEADWEIGHT LOSS The Lost CS and PS.
To be “efficient” a market must maximize consumers and producers surplus P S
DEADWEIGHT LOSS The Lost CS and PS.
INEFFICIENT! CS Pc
Price CEILING PS D
Qceiling Qe Q

14. #2 Import Quotas A quota is a limit on number of imports.
The government sets the maximum amount that can come in the country.
Purpose:
To protect domestic producers from a cheaper world price.
To prevent domestic unemployment

15. International Trade and Quotas
Identify the following:
CS with no trade
PS with no trade
CS if we trade at world price (PW)
PS if we trade at world price (PW)
Amount we import at world price (PW)
If the government sets a quota on imports of Q4 - Q2, what happens to CS and PS?
1.H
2.TLI
3.HIJKLMNRS
4.T
5.Q5-Q1
6. CS gets smaller and PS gets bigger
This graphs show the domestic supply and demand for grain. The letters represent area.

16. 1.H
2.TLI
3.HIJKLMNRS
4.T
5.Q5-Q1
6. CS gets smaller and PS gets bigger

17. #3 Subsidies The government just gives producers money.
The goal is for them to make more of the goods that the government thinks are important.
Ex:
Agriculture (to prevent famine)
Pharmaceutical Companies
Environmentally Safe Vehicles
FAFSA

18. Result of Subsidies to Corn Producers
Price of Corn S
SSubsidy
Price Down
Quantity Up
Everyone Wins, Right? Pe P1 D o Qe Q1 Q
Quantity of Corn 18

20. Excise Tax = A per unit tax on producers
#4 Excise Taxes
Excise Tax = A per unit tax on producers
For every unit made, the producer must pay $
NOT a Lump Sum (one time only)Tax
The goal is for them to make less of the goods that the government deems dangerous or unwanted.
Ex:
Cigarettes “sin tax”
Alcohol “sin tax”
Tariffs on imported goods
Environmentally Unsafe Products
Etc. 20

21. Government sets a $2 per unit tax on Cigarettes
Excise Taxes
Supply Schedule
Government sets a $2 per unit tax on Cigarettes P P Qs $5
140 $4
120 $3
100 $2 80 $1 60 S $5 4 3 2 1 D o Q 21

22. Government sets a $2 per unit tax on Cigarettes
Excise Taxes
Supply Schedule
Government sets a $2 per unit tax on Cigarettes P P Qs
$5 $7
140
$4 $6
120
$3 $5
100
$2 $4 80
$1 $3 60 S $5 4 3 2 1 D o Q 22

23. Tax is the vertical distance between supply curves
Excise Taxes
STax
Supply Schedule P P Qs
$5 $7
140
$4 $6
120
$3 $5
100
$2 $4 80
$1 $3 60 S $5 4 3 2 1
Tax is the vertical distance between supply curves D o Q 23

24. Tuesday
Objective: Students will demonstrate the ability to calculate the seller and consumer surplus or shortage.
Objective: Students will be able to listen and apply math to trade transactions and then calculate the difference.
Materials- the Pearl worksheets, pearls
EQ: What is the consumer/supplier surplus? What increased? Decreased? What happened to price and quantity? What role did competition play?

25. Free market We voluntarily buy and sell
Where does the numbers come from?
Buyers and sellers have a number that they are willing to pay/sell for
Where does that number come from?
Consumer surplus you were willing to pay for a pair of jeans-on sale for What is your consumer surplus
Produce surplus car dealer wants 25,000 the bottom dollar it will sell for (min.) but the buyer pays ticket price of 30,000. What is the producer surplus.
We are going to analyze this in action on the sell of a cell phone.

26. producer surplus sell price consumer surplus
$20.00
$300.00

27. Negotiations
What does it look like?
Sound like?

28. Students want more interactive activities for learning.
Teachers fear that you will not take the activity serious and learn.
I agree to do more activates, if you agree to learn and engage.
Do we have a deal?
Shake hands and agree to learn

29. Introduce interactive cooperative activity “Pearls”
Students will interact with one another as half the class is the buyer and the other half is the seller. They will switch off 2 times today and will fill out the computations between each round with their shoulder partners.
Students will be able to determine what the average price was on the pearl, determine equilibrium, see what negotiations is about and what happens to negotiations over time.

30. Tuesday in closing
Students will demonstrate the ability to calculate the seller and consumer surplus or shortage.
Students will be able to listen and apply math to trade transactions and then calculate the difference.
Materials- the Pearl worksheets, pearls
EQ: What is the consumer/supplier surplus?
On a sticky note write down 1 thing you learned today and 1 thing that was confusing (that I can tweek in the activity) Rate 1- horrible, never do this activity again to a 5- awesome keep them coming.

31. Notes for Pearl Activity
In a free market buyers and sellers come together to seek mutual benefit. Both parties need to walk away feeling good about the transaction.
Start out: Say that you go to buy a new car at 20k, where does that price come from- your income, budget
Where does the sellers bottom line come from what did they have to make a profit?
What you are willing to pay for an item and what you actually paid for it are not always the same you pay less and you have a consumer surplus
And what the supplier wanted and accepted are not the same, so producer surplus
Define those two concepts
2 volunteers come up to sell a cell phone,
The seller has no clue what the max. the buyer would pay nor does the buyer know how low the supplier will go down.
Give each the max. and min. don’t show it to anyone else and let them negotiate
Debrief with the class, what did they see
Calculate consumer and producer surplus buyer max 300 seller min 20.
Sell price
Seller Min Buyer Max
Have them figure the surplus
Who won? Both
Discuss the negotiation skills-
That you were looking for this, found one like it cheaper
Look at the benefits, point out the perks
Now I am going to divide the class into buyers and sellers, you discuss with your partner good negotiating methods for both the buyer and the supplier.
Hand out pearls to ½ the students, if it is an odd number 1 person can keep track of the selling price on the board.
Sellers at front, buyers at back, get them pumped. Show them privately the min. and max. for their team
Every round it stays the same
Have them sell. Call off 10 count down for last min. then get the average-
If any went under or over, remind them that they would have been fired for going over the min. max
Analyze the numbers- get feedback from students- most likely all over the place, and the average should be high
Put them in the room front and back
Give them same min and max
Have them go over the sell price numbers- what do you see--- should be closer, not all over the place If the number stayed the same for several day, it would reach equilibrium
So after round 2 we can assume that it is equilibrium
point out the min and max stayed the same

32. Wednesday- test tomorrow over all the materials we have covered thus far
Students will review what the equilibrium price was and now determine what happens when the supply of pearls is lowered and the buyers increases. They will also see what happens when a substitute product is introduced to the market.
Students will negotiate in buying and selling the Pearls. They will discuss as a class and calculate the surplus/shortage and their points.
They will answer the questions on the handout. Some in class discussion and some on their own.

33. Pearl Activity
Objective: you will practice negotiation skills, make predictions in the changes in the market and you will demonstrate active learning in cooperative learning.
Buying and selling of pearls will take place in Room Your goal is to get as much consumer and producer surplus as possible. In each round you will change from being a buyer to a seller and vice versa.
There will be 4 trading sessions.
You can only buy or sell one time in each session- no reselling, once you make your purchase sit down, seller come tell me the selling price and then sit down.
On this sheet you will enter the surplus you made. I will record all the sell price on the board to get the average sell price.
Scratch out the sample round- those are not your numbers. (don’t put those in the total score)
Practice round with cell phone- calculate the consumer and seller surplus and enter it in the table below. Sample round: Buyer max is 500 sell price is What is the surplus?
Discussion
Round 1: What was your surplus. If you did not buy or did not sell you will enter the entire min/max as a loss. ( )
Round 2- the pearls are now in the hands of the buyers so they are the sellers and buyers
Rule you cannot sell or buy from same person
calculate your surplus and enter it into the table below
See what average is-
Round Seller Min Buyer Max You sold/bought Surplus/loss Running Total
Sample XXXXXXXXXX 1 2 3 4
On back side of the paper see round 3

34. 1. Before change: Price ____ Qty _____ 2. Changes after round 3
A mysterious virus kills many oysters
1. What will happen to demand and supply of pearls?
2. Predict what will happen to price and quantity. Why will this happen?
3. If the price stays at the original equilibrium which would be greater QD or QS?
4. What role did competition play? Who competed? How did that affect price?
5. Use Economic analysis to show what happened. In the space below create the Supply and Demand at
Equilibrium. Show the change after round 3. And
Again after round 4.
1. Before change:
Price ____ Qty _____
2. Changes after round 3
Supply or demand first?
What was the shifter?
Price _____ Qty _____
Up or Down Up or Down
3. Changes after round 4
Supply or demand first
What was the shifter
Price ______ up or down
Qty _____ Up or Down
Calculate your surplus for round 3 and 4 to get a total on the front of the page.

35. Round
Seller
Buyer
Price
Your surplus
Running Total
Round 1 S Pe D Qe

36. Thursday
50 question AP formatted test

37. Friday
Students will practice in collaborative groups to work on FRQ from past AP test.
Students will read and discuss the questions and in their small groups they will model the process for answering the questions.
EQ: How do I tackle the FRQ?
Materials: FRQ packets from past AP test that cover the basic concepts.