Economics for Leaders Lesson 4 Markets In Action

Economics for Leaders Lesson 4: Markets In Action Economics for Leaders

Buyers DON’T Compete With Sellers Economics for Leaders

Buyers Compete with Other Buyers Economics for Leaders

Sellers Compete with Other Sellers Economics for Leaders

Market Competition: Win-Win Both buyers and sellers value what they received more than what they voluntarily gave up. Economics for Leaders

How are prices set? By the Market! Economics for Leaders

How Much Should We Do? How much should a buyer buy? How much should a seller sell? MB=MC Economics for Leaders

What influences demand? (Demand Shifters) Taste and preference Substitutes Income Population Economics for Leaders

Price S E E E D Quantity Economics for Leaders

Supply shifters costs of production – resource availability changes – technology changes – policies change (taxes, for example) numbers of suppliers Economics for Leaders

S Price S E E D Quantity Economics for Leaders

Changes in marginal costs (opportunity costs) bring about changes in supply and demand. Economics for Leaders

Changes in Price bring about changes in the quantity that buyers are willing to buy and/or that sellers are willing to sell. Economics for Leaders

Equilibrium Price The price at which the amount (quantity) people are willing and able to buy = the amount (quantity) producers are willing and able to sell. QD = QS Economics for Leaders

Economics for Leaders

Economics 1 vs. 100 Sit with your team. Your team will start with $3 to play 3 rounds. Each question is worth $1. If you answer the question correctly, you keep your $. If your answer is incorrect, you forfeit your $. Answers must be in written form and complete when time is called. Decisions of the judges are final re: whether your answer is correct. Every team must play every round. There are no drop-outs, only forfeiture of $1. Economics for Leaders

Round 1 Economics for Leaders

What will happen to the supply, the demand the price of Snickers bars if: A freeze wipes out most of the cocoa harvest? Price S 2 S P 2 P D Quantity Economics for Leaders

What will happen to the supply, the demand the price for movie tickets if: A tax cut puts a $1, 000 rebate in the mail to every household in the United States? D 2 Price P 2 S P D Quantity Economics for Leaders

What will happen to the supply, the demand the price of Oral-B rechargeable toothbrushes if: Oral-B develops new production techniques that cut the cost of production by 15%? Price S S 2 P P 2 D Economics for Leaders Quantity

Round 2 Economics for Leaders

Ethanol & Tortillas http: //beta. holamun 2. com/news/entonces-ethanol Economics for Leaders

1. Why is the price of tortillas increasing? A. Big restaurant chains have driven up prices by adding tortillas to their menus. B. Farmers have had a bad year with weather in the Midwest, so there is less corn available. C. Trade agreements between Mexico and the US have set a high price on corn in both countries. D. The demand for corn by ethanol producers has increased. Economics for Leaders

2. Restaurants in Mexico have announced higher prices for tortillas in the past year. How do we explain these announcements in an open market? A. Because the demand for tortillas has decreased in favor of other foods, restaurants face higher marginal costs of production. B. Because the supply of tortillas has decreased, restaurants face higher marginal costs of production. C. Demand for tortillas is increasing, which raises the market price that restaurants must charge. D. Demand for tortillas is decreasing so restaurants make up for lost revenue by raising Economics for Leaders prices.

3. One Mexican consumer was quoted as saying, “…as long as [tortilla prices don’t] go up like gas prices I think that I would be ‘OK’ with paying an extra 20 to 25 cents for a good tortilla. ” Can this claim be true for all consumers at their current quantity demanded? Which of the following statements about the market is correct? A. It cannot be true because it would imply that the previous price of tortillas was not a market equilibrium price. B. It cannot be true because so many restaurants serve tortillas that they have a great deal of market power. C. It can be true because restaurants keep prices below cost in order to keep from losing customers. D. It can be true because restaurants do not know if or when the demand for tortillas decreases. Economics for Leaders

Round 3 Economics for Leaders

What do you think will happen if the local trash collection company increases the monthly fee from $30 to $35? Why? Price $35 $30 Economics for Leaders Q/Q 2 Quantity

What will happen to the supply, the demand the price of gasoline in the U. S. if congress passes a law that sets a maximum price of $2. 25 per gallon? Price D S $2. 75 $2. 25 QD QS Economics for Leaders QP Quantity

States’ Minimum Wages One of the less-noted results of the 2006 mid-term elections was that six states voted to join the 22 that have already raised the minimum wage above the federally mandated $5. 15/hour. In subsequent legislation, the newly elected Congress imposed the increase on the remaining states, with the minimum wage rising to $6. 50/hour in July 2008 and then to $7. 25/hour in 2009. Economics for Leaders

4. A. The purpose of minimum wage legislation is to make employers pay more than they would otherwise – that is, more than they would in an open market. Which of the following should we expect to happen when the minimum wage is set above the “prevailing wage” that occurs in a labor market? There will be higher incomes as everyone will be paid more. B. The increase in minimum wage encourages people to find a better balance between work and home life. C. The supply of labor increases as more people move into the labor market seeking higher paying jobs. D. Businesses will raise prices as this is just a cost to be passed on to consumers. Economics for Leaders

5. Suppose that the minimum wage is increased but it is below the “prevailing wage” in the labor market. What would you expect to happen in this situation? A. B. The quantity of labor demanded will increase. Many new firms will succeed in hiring new employees at the minimum wage instead of the “prevailing” wage. C. The higher minimum wage will cause more workers to seek jobs overseas. D. The higher minimum wage will attract more low-paid, unskilled workers to the United States seeking lawful employment. Economics for Leaders

6. If raising the minimum wage to $7. 25/hour is a good idea, why doesn’t Congress make it a better idea and raise it to $20 or even $100? A. We should. A $20 minimum wage would add more money to the economy. B. Too many people would enter the labor market and find jobs at these higher wages, so that households would fall apart. C. At these wage rates, people wouldn’t go to college and there would be shortages of skilled labor. D. Higher wages will eventually increase unemployment and business failure. Economics for Leaders

Round 4 Economics for Leaders

Ghana and EU Banana Imports 6: 36 – 10: 00 http: //www. youtube. com/watch? v=blvx. Psh. CDe 4 Economics for Leaders

7. What is the effect of restrictions on banana length and weight (i. e. , bananas must be long and heavy) on the market for bananas in the European Union? The equilibrium (market) price rises and consumers’ choices are restricted. (The restrictions keep out particularly desirable varieties, such as the apple banana, which tastes like apple, and the Lady’s Finger, which is sweet and creamy. Both of these are small in size and weight. ) Economics for Leaders

8. Since EU member countries don’t have commercial banana growers, why does the EU place such restrictions on its own consumers? (Who benefits? ) European growers of other kinds of fruits. (The EU countries do not grow bananas, but they grow other fruits which are substitutes for bananas. Making imports conform to size and weight restrictions not only raises the cost, but also means that the bananas coming in are less sweet, which also encourages consumers to substitute other fruits for bananas. ) Economics for Leaders

The bananas shown in the video bear the Fairtrade certification mark, meaning that they have been produced by small farmer organizations or in plantations that meet very high social and environmental standards. Farmers who produce Fairtrade Certified Bananas are guaranteed a floor price (Fairtrade Minimum Price) to cover the average cost of production, and a Fairtrade Premium of 1 US$ per box of bananas to invest in social and economic initiatives in their communities. Economics for Leaders

9. What effect does Fair. Trade labeling have on the quantity demanded for Fair Trade labelled bananas? It depends. Either: Enough consumers who value socially conscious consumption will seek out such products and be willing to pay more, causing QD to increase (more will be sold). Or Consumers may not value such labels and will be unwilling to pay the higher price, causing QD to decrease (sales will fall). Economics for Leaders

Open Markets Benefit the Poor services available 1. They make more goods and at lower prices. 2. The presence of other competitors (actual or potential) provides incentives for innovation 3. Markets provides opportunities for the poor as workers. 4. Markets provides opportunities for the poor as entrepreneurs. Economics for Leaders

i. Phone Price Cut September 7, 2007, Steve Jobs (CEO of Apple) announced a price cut of $200 ($ News Report: On 599 to $399) for Apple’s new i. Phone. The i. Phone had been on the market for 4 months and sold almost 1 million units at the higher price. To temper the concern of those who paid $599, Jobs offered them a $100 rebate in the form of a gift card for use at Apple’s i. Tunes music store. Economics for Leaders

10. What was the effect of Apple’s price cut on the market for i. Phones? A. It increased quantity sold as the price reduction attracted more people to purchase an i. Phone. B. The quantity sold did not increase because the people who wanted them waited in long lines before Christmas and paid $599. C. Demand increased. D. Supply decreased. Remember the difference between QD and Demand. Only the price changed in this example, so it’s a price effect, not a change in demand. Economics for Leaders

11. Predict: How will the i. Phone price cut and gift card offer likely affect the sales of Apple’s i. Pod music players? I. People will buy fewer i. Pods waiting to see if Apple will reduce their price, too. II. The rebate lowers the cost of owning an i. Pod, so at the margin quantity sold will increase. III. Unlike i. Phone, competitors sell good substitutes for i. Pod, so the gift cards will have no effect on quantity sold. A. B. C. D. Economics for Leaders I only. II only I and II only All of the above.

12. How will Apple’s announcement affect the sales of competitor’s phones and what do you think competitors will do? A. The quantity supplied of both i. Phones and competitor’s phones will increase because Apple’s price cut lowers the relative price of competitor’s products, too. B. Demand for competitor’s phones will decrease and they will raise their prices to remain in equilibrium. C. The i. Phone is unique so there will be no effect on competitors because they are operating in a different market. D. The i. Phone is a substitute for competitors’ products, so they are likely to cut prices. Economics for Leaders

Round 5 Economics for Leaders

Minimum Wage http: //video. aol. com/video-detail/minimum-wage-increases/1638004371 Economics for Leaders

13. According to the video, the minimum wage in North Dakota has not changed in 10 years. Ten years ago, the prevailing (market) wage was 10% below the new minimum wage set by the legislation. Predict: What is the effect of that same minimum wage today? A. It still contributes to unemployment because it makes employers pay more than they would if the law didn’t exist. B. It has little or no affect on unemployment or wages because inflation has likely raised wages above what the law requires. C. It causes poverty in North Dakota because employers don’t have to pay more than the minimum wage even though there has been inflation for the past 10 years. D. It reduces poverty in North Dakota because it keeps production costs down and the prices of goods and services are more affordable. Economics for Leaders

14. In the video, Don Morrison (NDPeople. org) said the “whole point” is that a higher minimum wage works its way up, so that skilled workers also earn higher wages than before. What of the following would make his prediction inaccurate? A. The new minimum wage increases unskilled workers’ demand for training. B. The new minimum wage increases unemployment among less skilled workers C. Skilled workers move out of North Dakota for higher wage markets. D. Employers move out of North Dakota for lower cost labor markets. Economics for Leaders

3. Over 21, 000 North Dakotans will be affected by the new Federal law that raises the minimum wage from $5. 15 to $5. 85 per hour. The wage will rise again in July 2008 to $6. 50 per hour and in 2009 to $7. 25 per hour. Which of the following statements is true about labor conditions in North Dakota during these changes? A. The 40% increase in minimum wage will increase incomes of all workers. B. The 40% increase in minimum wage will keep workers and firms from leaving North Dakota. C. The supply of labor will increase as people move to North Dakota seeking higher paying jobs. D. Unemployment rates among lower skilled workers will increase. Economics for Leaders