PRINCIPLES OF MACROECONOMICS PART I Introduction to Economics TENTH EDITION CASE FAIR OSTER © 2012 Pearson Education, Inc Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly Tefft PART I Introduction to Economics © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 Demand and Supply Applications CHAPTER OUTLINE The Price System: Rationing and Allocating Resources Price Rationing Constraints on the Market and Alternative Rationing Mechanisms Prices and the Allocation of Resources Price Floors PART I Introduction to Economics Supply and Demand Analysis: An Oil Import Fee Supply and Demand and Market Efficiency © 2012 Pearson Education, Inc Publishing as Prentice Hall Consumer Surplus Producer Surplus Competitive Markets Maximize the Sum of Producer and Consumer Surplus Potential Causes of Deadweight Loss from Under- and Overproduction Looking Ahead of 44 The Price System: Rationing and Allocating Resources PART I Introduction to Economics price rationing The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 The Price System: Rationing and Allocating Resources Price Rationing FIGURE 4.1 The Market for Wheat PART I Introduction to Economics Fires in Russia in the summer of 2010 caused a shift in the world‘s supply of wheat to the left, causing the price to increase from $160 per millions of metric tons to $247 The equilibrium moved from C to B © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 PART I Introduction to Economics Refer to the graph below At what price level is price rationing especially necessary? a At $3.25 b At $2.50 c At $1.75 d None of the above Price rationing is never desirable © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 PART I Introduction to Economics Refer to the graph below At what price level is price rationing especially necessary? a At $3.25 b At $2.50 c At $1.75 d None of the above Price rationing is never desirable © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 PART I Introduction to Economics Refer to the figure Start at point C What is the impact of the shift in supply on the demand side of the market? a After the shift in supply, there is a decrease in quantity demanded b After the shift in supply, there is a decrease in demand c After the shift in supply, there is an increase in demand d After the shift in supply, there is an increase in quantity demanded © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 PART I Introduction to Economics Refer to the figure Start at point C What is the impact of the shift in supply on the demand side of the market? a After the shift in supply, there is a decrease in quantity demanded b After the shift in supply, there is a decrease in demand c After the shift in supply, there is an increase in demand d After the shift in supply, there is an increase in quantity demanded © 2012 Pearson Education, Inc Publishing as Prentice Hall of 44 ECONOMICS IN PRACTICE Prices and Total Expenditure: A Lesson from the Lobster Industry in 2008-2009 It is very important to distinguish between the price of a product and total expenditure from that product Total revenue or expenditure in a market is simply the number of units sold multiplied by the price PART I Introduction to Economics Lobster Prices Plummet As Maine Fishermen Catch Way Too Many Business Insider The adjustment of price is the rationing mechanism in free markets Price rationing means that whenever there is a need to ration a good—that is, when a shortage exists—in a free market, the price of the good will rise until quantity supplied equals quantity demanded—that is, until the market clears © 2012 Pearson Education, Inc Publishing as Prentice Hall 10 of 44 ... of $1.75, there is a surplus of soybeans, which is the result of an imposed price floor b At a price of $1.75, there is a shortage of soybeans, which is the result of an imposed price floor of. .. of $1.75, there is a surplus of soybeans, which is the result of an imposed price floor b At a price of $1.75, there is a shortage of soybeans, which is the result of an imposed price floor of. .. shows a surplus of soybeans, which is the result of an imposed price ceiling of $1.75 d This graph shows a shortage of soybeans, which is the result of an imposed price ceiling of $1.75 © 2012