Post on 26-Jan-2017
Microeconomics
Lecture 6
Supply, Demand, and Government Policies
Exam 2 Review
price ceilingprice floortax incidence
Key Terms
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Price
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Supply
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1. What is the equilibrium price?
2. What is the equilibrium quantity?
3. If the market price was 80, how many pizzas would be sold?
4. If the market price was 30, how many pizza would be sold?
5. If the market price was 80, would there be a shortage, surplus, or equilibrium?
6. If the market price was 30, would there be a shortage, surplus, or equilibrium?
7. What would be the quantity demanded at a price of 80?
8. What would be the quantity supplied at a price of 80?
9. What would be the quantity demanded at a price of 30?
10. What would be the quantity supplied at a price of 30?
10 Questions
Price
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QD = QS
Price
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QD = QS
QS - QD5 - 5
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QD = QS
QS - QD5 - 5
No ShortageNo Surplus
Price
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QD
Price
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QD
Price
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QD
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QD
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QD QS
Price
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QD QS
QS - QD8 - 2
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QD QS
Surplus of 6
QS - QD8 - 2
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QS
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QS
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QS
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QS
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QDQS
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QDQS
QS - QD3 - 7
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QDQS
Shortage of 4
QS - QD3 - 7
1. What is the equilibrium price? 50
2. What is the equilibrium quantity? 5
3. If the market price was 80, how many pizzas would be sold? 2
4. If the market price was 30, how many pizza would be sold? 3
5. If the market price was 80, would there be a shortage, surplus, or equilibrium? surplus
6. If the market price was 30, would there be a shortage, surplus, or equilibrium? shortage
7. What would be the quantity demanded at a price of 80? 2
8. What would be the quantity supplied at a price of 80? 8
9. What would be the quantity demanded at a price of 30? 7
10. What would be the quantity supplied at a price of 30? 3
10 Questions
Tax Liability
Tax Incidence
Tax Liability
Tax Incidence
Who is legally responsible to pay the tax to the
government
Tax Liability
Tax Incidence
Who is legally responsible to pay the tax to the
government
Who actually pays the tax
Just because I have the Tax Liability does not mean that I have the
Tax Incidence
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Pizza Tax
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1. What is the equilibrium price before the tax?
2. What is the equilibrium quantity?
3. If the tax is 20 SAR, what will be the new price?
4. If the tax is 20 SAR, how many pizza would be sold?
5. What will be the total revenue with the new tax?
6. How much tax will the seller pay?
7. How much tax will the buyer pay?
8. How much will the total tax be?
9. How much did the seller earn after paying the tax?
10. Why isn’t the new price 70?
Pizza Tax Questions
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Supplyno tax
Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
Tax on Supplier of 20Shift the curve up by 20
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Price
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Pizza Tax
Supplyno tax
Tax on Supplier of 20Shift the curve up by 20
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Price
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Pizza Tax
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Pizza Tax
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Pizza Tax
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Buyer Price
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Pizza Tax
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Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Taxesof 20
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Taxesof 20
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Taxesof 20
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
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Taxesof 20
Supplyno tax
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Tax on Supplier of 20Shift the curve up by 20
• Taxes discourage market activity • Value creation is reduced• Buyers and sellers share the burden• Buyers pay more, sellers receive less
Taxes
Prepare for Exam 21. Read Chapters 4, 5, and 6
2. Review lecture slides on blog
3. Review lecture questions on blog
4. Review your class notes
5. Study alone for a while
6. Then study with smart friends
7. Don’t be late for exam
8. Bring pencil and calculator
Chapter 4The Market Forces of Supply and Demand
marketcompetitive marketquantity demandedlaw of demanddemand scheduledemand curvenormal goodinferior goodsubstitutes complements
quantity supplied law of supplysupply schedulesupply curveequilibriumequilibrium priceequilibrium quantitysurplusshortagelaw of supply and demand
Chapter 5Elasticity and Its Application
elasticityprice elasticity of demandtotal revenuetotal expenditureincome elasticity of demandcross-price elasticity of demandprice elasticity of supply
ELASTICITY EQUATION BENCHMARK
Price Elasticity of Demand
Cross-PriceElasticity
IncomeElasticity
Price Elasticityof Supply
MidpointFormula
Inelastic | Elastic 1
Compliments | Substitutes 0
Inferior | Normal | Luxury 0 1
Inelastic | Elastic 1
%∆QD%∆P
%∆QS%∆P
%∆QD1
%∆P2
%∆QD%∆I
∆Q∆PQPx
Chapter 6Supply, Demand, and Government Policies
price ceilingprice floortax incidence