BU204 - Unit 3 Seminar

Welcome!

Instructions for Assignment:Define key terms (worth a maximum of 35 points). • a. Define key terms listed below as they are defined in the textbook.

• b. Explain what those definitions mean to you in your own words. • c. If graphs will help clarify your explanation, place the appropriate

graphs in your word document. • d. Explanations that accurately reflects the learning of the Unit, that

are logical, and clearly presented with correct spelling, word usage and grammar.

• e. Correct APA format, including Header information with your name, course number, Section number, unit number and date, double spaced test in 12 point Times New Roman black font

• f. References are listed at the end of your answer to the question.

Key Terms for Unit 3:• Demand

• Supply

• Cause of a Movement along a curve

• Causes of a Shift of both the demand and supply curves

• Equilibrium

• Cause of a Surplus

• Cause of a Shortage

• Floor price

• Ceiling price

Chapter 3 - Supply and Demand• Demand

– Demand schedule: Table of data showing how much of a g/s consumers will want to buy at different prices.

– Demand curve: Graphical representation of demand schedule.

– Quantity demanded: Actual amount consumers are willing to buy at some specific price.

– Law of Demand: Other things equal, the higher the price for a good, the lower the quantity demanded.

• Movement along demand curve:– A change in quantity demanded (due to change

in the price of the g/s).

• Shift in demand curve:– A change in quantity demanded at any given

price (entire curve shifts). – Shifts are caused by “non-price factors”

• Change in the price of related goods• Change in income• Change in tastes• Change in expectations

Supply • Supply schedule: Table of data showing how

much g/s would be supplied at different prices.

• Supply curve: Graphical representation of supply schedule.

• Quantity supplied: Actual amount of g/s people are willing to sell at some specific price.

• Law of supply: Other things equal, the higher the price for a good, the higher the quantity supplied.

• Movement along supply curve:– A change in quantity supplied (due to

change in the price of the g/s).

• Shift in supply curve:– A change in quantity supplied at any given

price (entire curve shifts). – Shifts are caused by “non-price factors”

• Change in input prices• Change in technology• Change in expectations

Equilibrium• Equilibrium occurs at the unique point

where the two curves cross– Equilibrium price– Equilibrium quantity

Shifts in demand

Shifts in supply

• Price ceiling: A maximum price sellers are allowed to charge for a good or service.– Result: Shortage

• Quantity demanded is greater than quantity supplied.

• Price floor: Minimum price buyers are required to pay for a good or service.– Result: Surplus

• Quantity supplied is greater than quantity demanded.

Midterm Assignment:• Question 3: As noted in the text, European governments tend

to make greater use of price controls than does the American government. For example, the French government sets minimum starting yearly wages for new hires who have completed le bac, certification roughly equivalent to a high school diploma. The demand schedule for new hires with le bac and the supply schedule for similarly credentialed new job seekers are given in the accompanying table. The price here—given in euros, the currency used in France—is the same as the yearly wage.

• b1. In the absence of government interference, what is the equilibrium wage and number of graduates hired per year? (Also see the diagram) Will there be anyone seeking a job at the equilibrium wage who will be unable to find one— that is, will there be anyone who is involuntarily unemployed?

• b2. What if the minimum wage is set at 40,000? (Also see the diagram) Is there any involuntary unemployment at this wage? If so, how much? Explain why. (5 points)

• c. Given your answer to part b and the information in the table, what do you think is the relationship between the level of involuntary unemployment and the level of the minimum wage? Who benefits from such a policy and who loses? What is the missed opportunity here?

• Question 4: For the last 70 years the U.S. government has used price supports to provide income assistance to American farmers. At times the government has used price floors, which it maintains by buying up the surplus farm products. At other times, it has used target prices, a policy by which the government gives the farmer an amount equal to the difference between the market price and the target price for each unit sold. Consider the market for corn depicted in the accompanying figure.

• a. If the government sets a price floor of $5 per bushel, what does that mean and how will it affect supply and demand (illustrated on the supply and demand curve)?

• How many bushels of corn are produced by the farmer?

• How many bushels of corn are purchased by consumers and at what price?

• How many bushels of corn are purchased by the government and at what price?

• How much does the program cost the government?

• How much revenue do corn farmers receive? (10 points)

• b. Suppose the government sets a target price of $5 per bushel for any quantity supplied up to 1,000 bushels.

• What does that mean and how will it affect supply and demand (illustrate on the supply and demand curve?

• How many bushels of corn are purchased by consumers and at what price?

• How many bushels of corn are purchased by the government, if any?

• How much does the government pay the farmer and at what price?

• How much revenue do corn farmers receive? (10 points)

• c. Which of these programs (in parts a and b) costs corn consumers more? Explain.

• Which program costs the government more? Explain. What are the inefficiencies that arise in each of these cases (parts a and b)? (20 points)

• b1. Suppose the French government sets a minimum yearly wage of 35,000. (Also see the diagram) Is there any involuntary unemployment at this wage? If so, how much? Explain why. (5 points)