Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Unit II Study Guide*-How Markets Work Unit Summary: Macroeconomics includes the basic concepts of demand, supply, price and market structures. In addition, it applies these concepts to the laws of demand and supply, demand and supply schedules and curves, elasticity of demand and supply, how business and markets set prices, price regulation, competitive and noncompetitive market structures and market regulation. Big Ideas: There is an inverse relationship between price and quantity demanded: an increase in price decreases the quantity demanded for a good or service, while a decrease in prices increases the quantity demanded. Elasticity of demand determines the degree of change. There is a direct relationship between price and quantity supplied: an increase in price increases the quantity supplied, while a decrease in prices decreases the quantity supplied. Elasticity of supply determines the degree of change. Over time, factors other than price can affect demand or supply for a product or service. Profits, productivity and the costs of production affect production decisions. Price for a product or service occurs at equilibrium, a point where quantity supplied by producers and quantity demanded by consumers is equal, meeting the needs of both buyers and sellers. In a market economy, prices tend to seek equilibrium, unless the government institutes price floors or price ceilings. Domestic and international competition in a market economy affects goods and services produced and the quality, quantity, and price of those products. Essential Questions: How do the laws of supply and demand affect the economy—choices, scarcity, price and quantity? How are prices determined in a market economy? How does price allocate scarce goods within a market economy? What happens to buyers and sellers when governments attempt to establish price controls? How does profit influence entrepreneurial and production decisions? What are the functions of economic markets (the “marketplace”), and what effects do competition have on these markets? What might cause price to be above or below equilibrium, and what does the market do to correct the situation? Explain the law of demand, with regard to the relationship among income effect, substitution effect and diminishing marginal utility. Describe the consequences of the major methods the government uses to intervene in the marketplace, taxes, subsidies and regulation. 1 Explain how the change in the price of a product affects demand for its substitute goods and its complementary goods. Describe briefly how taxes and subsidies affect supply. Describe the differences between fixed costs and variable costs. Illustrate how the price system responds to surpluses. Topics/Terms: Demand Law of demand Substitution effect Income effect Demand schedule Market demand schedule Demand curve Ceteris paribus Normal good Inferior good Complements Substitutes Elasticity of demand Inelastic Elastic Unitary elastic Total revenue Supply Law of supply Quantity supplied Supply schedule Variable Market supply schedule Supply curve Market supply curve Elasticity of supply Marginal product of labor Increasing marginal returns Diminishing marginal returns Fixed cost Variable cost Total cost Marginal cost Marginal revenue Operating cost Subsidy Excise tax Regulation Equilibrium Disequilibrium Excess demand Excess supply Price ceiling Price floor Rent control Minimum wage Surplus Shortage Search costs Supply shock 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 Market power Monopolistic competition Differentiation Nonprice competition Oligopoly Price war Collusion Price fixing Cartel Predatory pricing Antitrust laws Trust Merger Deregulation Short-Answer Questions—some or all will be used as short-answer questions on the exam: Explain the difference between demand and quantity demanded. Explain how the change in the price of a product affects demand for its substitute goods and its complementary goods. Give examples of what types of products tend to have elastic demand; inelastic demand. 2 Describe the law of supply. Describe what type of products tend to have an elastic supply. Describe the determinants of supply. Describe how taxes and subsidies affect supply. Describe the differences between fixed costs and variable costs. How does productivity influence supply decisions? Illustrate how the price system responds to surpluses and shortages. Describe the four conditions that must exist for a market to be perfectly competitive. Compare the characteristics of oligopolies and monopolies. Why did the federal government pass the Sherman Antitrust Act and other antitrust legislation? Challenge Your Thinking: Of the 5 non-price determinants of demand—consumer tastes and preferences, market size, income, prices of related goods, consumer expectations—explain which three are the most compelling…and why. Analyze the probable results of a government policy placing a $1 price ceiling on a gallon of milk and a $5 price floor on a bushel of wheat. Summarize why determining demand elasticity is important in economics. Explain the law of diminishing returns and discuss how it is illustrated by the total product curve. What are the advantages and disadvantages of the minimum wage for workers? *Applicable California Economic Standards: 12.1.3: Students understand common economic terms and concepts and economic reasoning. 12.3.1, 12.2.2: Students analyze the influence of the federal government on the American economy. 12.2.1, 12.2.2, 12.2.4, 12.2.5, 12.2.6, 12.2.7, 12.2.10: Students analyze the elements of America's market economy in a global setting. 12.4/1, 12.4.3: Students analyze the elements of the U.S. labor market in a global setting. 3