Download Test Notes – Please Read!!

Section 2 Test Notes
1. Make sure you are able to complete problems from both homework packages and the practice
test
2. Complete Practice Problems handout – solutions are posted on the blog
3. Read Economics by Example Ch. 3 and review discussion questions
4. Check the extra video thinks for further instruction on areas you are having trouble with
5. Email me if you have any questions!
Key topics to review:
- perfect market (competitive market) conditions
- Change in price causes a change in quantity demanded --- language is impt (as with suppy)
- equilibrium – state where there is no tendency for anything to change
- shifts >> right = increase, left = decrease – not up and down!!!!
- find equilibrium price and quantity, calculate surplus and shortage from table
- pressure on price – sub example on Friday night, what happens to the price of ornaments and
Christmas decorations right after Christmas? What is the best way to get rid of a surplus? Lower
the price.
- pressure on price – shortage – auction style – think 1 valuable painting and many interested
customers --- what is the best way to ensure you get the product? Bid up the price (real life this
happens in the Vancouver real estate market)
- Shifting in equilibrium – when demand shifts, eq. price and eq. quantity change in the same
direction, whens supply shifts, quantity changes in the same direction as shift, price is the
opposite
- draw out your equilibrium graphs, clearly label equilibrium q and p points!! And compare to
new situation
- one shift for one factor
- draw out equilibrium shift with demand shifting right and supply shifting right to illustrate
shortage and surplus
****- When there are 2 shifts (double shifts, simultaneous shifts), one factor may not be able to
be determined (ambiguous
- for example, a demand AND supply shift to the right (increase) results in increase in eq but
new ep cannot be determined
- it is best to draw these out rather than try to memorize them --- with a small shift and a big
shift what factor always increases/decreases? Which one seems to change?
- price ceiling – legal maximum – protects consumers
- price floor – legal minimum – protects producers
- black markets may arise when there is a price ceiling – why? Others are willing to pay a higher
price – think concert tickets –scalpers – there are some people that are willing to pay more – the
original box office price acts as a pseudo “price ceiling” in this case (note the economics example
of price ceilings and floor refers to government restrictions and regulations put in place (ie.
Rent controls, min wage)