Download Unit 2A Overview

Unit II – Nature and Functions of Product Markets
Objectives:
 NCEE Content Standard 7 – Markets exist when buyers and sellers interact. This interaction
determines market prices and thereby allocates scarce goods and services.
 NCEE Content Standard 8 – Prices send signals and provide incentives to buyers and sellers. When
supply or demand changes, market prices adjust, affecting incentives.
 NCEE Content Standard 9 – Competition among sellers lowers costs and prices, and encourages
producers to produce more of what consumers are willing and able to buy. Competition among
buyers increases prices and allocates goods and services to those people who are willing and able to
pay the most for them.
Vocabulary: (Big topics in bold)
Law of Demand
Demand Schedule
Normal Goods
Complementary Goods
Supply
Determinants of Supply
Shortage
Total Revenue Test
Unit Elastic
Determinants of Elasticity
Quantity Demanded
Demand Curve
Inferior Goods
Law of Supply
Supply Schedule
Market Equilibrium
Disequilibrium
Perfectly Inelastic
Elastic
Demand
Determinants of Demand
Substitute Goods
Quantity Supplied
Supply Curve
Surplus
Elasticity
Inelastic
Perfectly Elastic
Numbers and Formulas:
Price Elasticity of Demand
Cross Price Elasticity
Income Elasticity of Demand
Price Elasticity of Supply
Visuals:
Supply/Demand Model and manipulations
AP Microeconomics Activity Book (answers to Unit 1 and 2 M/C sample questions for Unit 2A)
Unit 1:
4. C
6. B
8. B
30. E
31. B
Unit 2:
2. D
3. A
4. D
7. C
8. E
10. A
13. C
15. E
17. E
19. A
Unit IIA Calendar:
Monday
Tuesday
26
Unit 1 Test
Post Test
Discussion
Wednesday
27
Hwk: Read
Module 5
October 3
No School
Determinants
Hwk: Read
Module 7
10
No School
Elasticity
17
Friday
29
30
Markets
Markets cont.
Determinants
Hwk: Unit 2A RP
due Thurs., 10/13
Hwk: AP Micro
Activity 1-8
Hwk: Read
Module 6
4
5
Determinants
6
Markets Interact
Hwk: AP Micro
Hwk: AP Micro
Activities 1-5, 1-7, Activity 2-1
1-9
11
12
13
No School
Elasticity
Hwk: Read
Modules 47-48
Unit 2A Test
Thursday
28
Hwk: AP Micro
Activities 2-3, 2-4,
2-5
7
Markets Interact
Hwk: Read
Module 46
(p.461-464 only)
14
Elasticity
Hwk: Review for
Test
18
Post Test
Discussion
What you should know at the end of this unit?
 According to the law of demand, as the price of a good falls, the quantity demanded rises. Therefore,
the demand slopes downward. According to the law of supply, as the price of a good rises, the
quantity supplied rises. Therefore, the supply curve slopes upward.
 Demand and supply together set the price of a good and quantity sold.
 In addition to price, other non-price determinants impact how much consumers want to buy and how
much producers want to sell, shifting the demand and supply curves.
 When the market price is above the equilibrium price, there is a surplus of the good, which causes the
market price to fall. When the market price is below the equilibrium price, there is a shortage, which
causes the market price to rise.
 The price elasticity of demand measures how much quantity demanded responds to changes in the
price. The price elasticity of demand is calculated as the percentage change in quantity demanded
divided by the percentage change in price.
 The price elasticity of demand is anywhere in the range from perfectly inelastic, meaning quantity
demanded is unaffected by the price and the demand curve is a vertical line, to perfectly elastic,
meaning there is a unique price at which consumers will buy as much or as little as they are offered
and the demand curve is a horizontal line.
 If the price elasticity of demand is greater than 1, demand is elastic; if it is less than 1, demand is
inelastic; if it is exactly 1, demand is unit-elastic. If price elasticity of demand is elastic, total revenue
falls when the price increases and rises when the price decreases. If price elasticity of demand is
inelastic, total revenue rises when the price increases and falls when the price decreases.
 The price elasticity of demand depends on the following determinants: whether there are close
substitutes, the necessity of the good, price to budget percentage and the time horizon.
 Cross price elasticity of demand measures the effect of a change in one good’s price on the quantity
of another good demanded. The income elasticity of demand is the percent change in income. The
price elasticity of supply is the percent change in the quantity of a good supplied divided by the
percent change in the price.