Name & Block: Economics: Unit Two Study Guide Standards: SSEMI2 Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy. a. Define the law of supply and the law of demand. b. Distinguish between supply and quantity supplied, and demand and quantity demanded. c. Describe the role of buyers and sellers in determining market clearing price (i.e. equilibrium). d. Illustrate on a graph how supply and demand determine equilibrium price and quantity. e. Identify the determinants (shifters) of supply (e.g., changes in costs of productive resources, government regulations, number of sellers, producer expectations, technology, and education) and illustrate the effects on a supply and demand graph. f. Identify the determinants (shifters) of demand (e.g., changes in related goods, income, consumer expectations, preferences/tastes, and number of consumers) and illustrate the effects on a supply and demand graph. g. Explain and illustrate on a graph how prices set too high (e.g., price floors) create surpluses, and prices set too low (e.g., price ceilings) create shortages. SSEMI3 Explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organization sole proprietorship, partnership, and corporation with regards to number of owners, liability, lifespan, decision-making, and taxation. b. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure (perfect) competition with regards to number of sellers, barriers to entry, price control, and product differentiation. Word Definition Provide an Example (Must be a sentence) Demand (79)
Law of Demand (79) Substitution Effect (80) Income Effect (80) Demand Schedule (81) Demand Curve (82) Population Effect (87) Consumer Expectations (87) Consumer Tastes (87) Compliment Effect (88) Supply (101) Law of Supply (101) Quantity Supplied (101) Supply Curve (104)
Supply Schedule (104) Subsidy (117) Input(116) Technology (117) Taxes (118) Regulation (118) Future Expectations of Prices (119) Number of Suppliers (119) Equilibrium (125) Disequilibrium (126) Price Ceiling (128) Price Floor (128) Rent Control (129)
Minimum Wage (130) Surplus (134) Shortage (134) Perfect Competition (151) Monopoly (156) Patent (159) Monopolistic Competition (166) Oligopoly (169) Trust (173) Sole Proprietorship (185) Liability (187) Partnership (190)
Unlimited Liability (192) Corporation (195) Stock (195) Questions: 1. Explain the difference between a change in quantity demanded and a change in demand. 2. What is the only factor that can cause a change in the quantity demanded? 3. List all of the factors that can cause a change in demand. 4. Explain the difference between a change in quantity supplied and a change in supply. 5. What is the only factor that can cause a change in the quantity supplied? 6. List all of the factors that can cause a change in supply. 7. What is a price floor? Give a real-life example of a price floor. 8. What is a price ceiling? Give a real-life example of a price ceiling. 9. What is the difference between equilibrium and disequilibrium? 10. What are the four market structures and how are they different? 11. Give a real-life example of a business in each market structure. 12. What are the three types of business organizations, and explain how they are different. Make sure to explain how they are alike or
different in relation to limited and unlimited liability. Practice Problems 13. Looking at the above graph, list the equilibrium price and quantity supplied/demanded. 14. Looking at the above graph, what would happen if the government created a price floor at $4? Would you have a surplus or shortage? How much of a surplus or shortage would you have? 15. Looking at the above graph, what would happen if the government created a price ceiling at $2? Would you have a surplus or shortage? How much of a surplus or shortage would you have? 16. What price would result in a shortage of 90? Directions: Use your notes to fill in the graphs. Type of Market Structure Pure Competition Number of Sellers Barriers to Entry Price Control Product Differentiation Monopolistic Competition Oligopoly Monopoly
Type of Business Sole Proprietorship How Many Owners Type of Liability What is the Lifespan? Who makes the decisions? Type of Taxation Partnership Corporation Directions: For each question, explain the change that would occur on the graph. For example, if I asked What would happen if Johnny got a raise at work? You would say: The curve would shift from D1 to D2. Also, you need to tell what variable this relates to. For example, you would say that this example relates to the income effect. 17. Johnny loses his job. He no longer can afford steak dinners. What will happen on the graph? 18. Wal-Mart expects to sell more TVs on Black Friday. What will happen to the amount of TVs being produced in September? 19. A new pair of Jordan s just came out. They are very popular. What will happen on the graph? 20. Hundreds of people decide to move out of Powder Springs. They no longer need homes in Powder Springs. 21. The price of butter goes up, so people buy margarine instead. What would happen to margarine (on the graph)? 22. The price of hamburger meat goes up. What would happen to hamburger buns (on the graph)? 23. Johnny expects the price of a new video game to decrease in two weeks. What will currently happen (on the graph)? 24. The government gives Farmer John a subsidy to stop growing wheat. What will happen (on the graph)?
25. A new candy company enters the market. What will happen (on the graph) to the amount of candy in the market? 26. The government increases its tax on the production of beer. What will happen to the amount of beer being produced (on the graph? 27. The price of sugar increases. How will this impact the amount of donuts produced at Dunkin Donuts (on the graph)? 28. A new invention allows McDonalds to produce more fries. What will happen (on the graph)?