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Economics: Principals in Action Unit Plans Unit 1: How Markets Work: Supply and Demand, Prices, Market Structures Duration: 2-3 weeks Textbook: Economics Principals in Action Chapters: Chapters 4, 5, 6, 7 Content Questions 1. What is the law of demand? 2. How do the substitution effect and the income effect influence decisions? 3. What is a demand schedule? 4. How do you interpret demand graphs and schedules? 5. What is the difference between a change in quantity demanded and a shift in the demand curve? 6. How does the change in the price of one good affect demand for a related good? 7. What are the factors that affect elasticity? 8. What is the law of supply? 9. How do you interpret supply graphs and schedules? 10. What is the relationship between elasticity of supply and time? 11. What are the production costs of a firm? 12. When does a firm decide to shut down an unprofitable business? 13. What determinants cause changes in supply? 14. How can governments influence the supply of a good? 15. How does supply and demand work globally? 16. How does supply and demand create balance in the market place? 17. How do markets in equilibrium and disequilibrium compare? 18. How do governments intervene to control prices? 19. What effects do price ceilings and floors have economically? 20. What are the determinants that change prices? 21. How do markets react to a fall in supply? 22. How do markets react to a shift in demand? 23. What is the role of prices in a free market? 24. What are the advantages of a price-based system? 25. What are the four conditions that are in place in a perfectly competitive market? 26. What are prices and output in a perfectly competitive market? 27. What is a monopoly? How are they formed? 28. What is monopolistic competition? 29. How do firms compete without lowering prices? 30. What is an oligopoly? 31. How do firms use market power? 32. What does the government do to protect competition? Essential Questions/Concepts: Be able to explain the following concepts with examples and information from the unit: 1. People respond predictably to positive and negative incentives 2. Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services. 3. Competition among sellers lower costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. 4. Prices send signals and provide incentives to buyers and sellers 5. Supply and demand work together to set the price of a good and the quantity sold 6. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. 7. Governments sometimes have to intercede to control prices and firms Vocabulary 1. Demand 2. Law of demand 3. Substitution effect 4. Income effect 5. Demand schedule 6. Market demand schedule 7. Demand curve 8. Ceteris paribus 9. Normal good 10. Inferior good 11. Compliments 12. Substitutes 13. Inelastic 14. Elastic 15. Unitary elastic 16. Total revenue 17. Supply 18. Law of supply 19. Quantity supplied 20. Supply schedule 21. Variable 22. Market supply schedule 23. Supply curve 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. Market supply curve Elasticity of supply Marginal product of labor Increasing marginal returns Diminishing marginal returns Fixed costs Variable costs Total costs Marginal costs Marginal revenue Operating costs Subsidy Excise tax Regulation Equilibrium Disequilibrium Excess demand Excess supply Price ceiling Price floor Rent control Minimum wage Surplus 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. Rationing Black market Spillover costs Perfect competition Commodity Barrier to entry Imperfect competition Start-up costs Monopoly Economies of scale Natural monopoly Government monopoly Patent Franchise License Price discrimination Monopolistic competition Differentiation Non-price competition Oligopoly Price war Price fixing Cartel Activities/Lessons Lesson 1: Demand and shifts in demand, elasticity of demand 1. Read chapter 4 and do the reading guide that goes with each section 2. Divide the section up into 5 sections (2 people double up) a. Law of demand b. Substitution effect c. Income effect d. Demand schedule e. Demand graph 3. 3 minutes to read and be able to explain the concept 4. Go around and tell every other person in the class about your concept – be sure to talk to everyone a. Person being talked to should say it back 5. Back to class- call outs to see what was learned and to clarify and check for understanding a. Go over the graph 6. Whiteboard lecture on shifts in the demand curve a. Set up demand curve b. Put up variables that affect quantity demanded table (discuss each one) c. Show increases/decreases of demand 7. Explain to three other people what was learned 8. Make a grid on the board – label each column: Product, demand elasticity, reason a. Under product write: salt, steak, sports car, Picasso painting, chocolate bar, specialty shoe, toothpaste, dainty gold necklace, milk, silverware b. Have each student come up and choose a product and fill in the chart 9. Discuss how businesses use elasticity to decide prices 10. SCENARIO 3: a. Create a demand schedule and graph for one of your products b. CHANGE 1: The government has just decreased taxes which means everybody has more money to spend – demonstrate how this will affect your demand graph c. CHANGE 2: The government has just increased the tax rate for your business so your over all costs have increased. You now need to change some of your prices in order to make up for this increase in production costs – demonstrate how this will affect your demand graph i. REMEMBER – is your item elastic or inelastic? 11. Quiz on chapter 4 Lesson 2: Supply, costs of production, changes in supply 1. Reach Chapter 5 and do the reading guides for each section 2.