1. Microeconomics
Lecture 6
Supply, Demand, and
Government Policies
Exam 2 Review

4. price ceiling
price floor
tax incidence
Key Terms

5. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Supply
Demand

6. 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

7. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

8. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

9. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

10. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

11. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

12. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

13. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD = QS

14. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD = QS
QS - QD
5 - 5

15. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD = QS
QS - QD
5 - 5
No Shortage
No Surplus

16. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

17. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

18. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

19. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

20. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

21. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD

22. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD

23. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD

24. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD

25. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD QS

26. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD QS
QS - QD
8 - 2

27. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QD QS
Surplus of 6
QS - QD
8 - 2

28. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

29. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

30. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

31. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

32. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

33. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10

34. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QS

35. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QS

36. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QS

37. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QS

38. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QDQS

39. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QDQS
QS - QD
3 - 7

40. Price
Quantity
Supply
Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
QDQS
Shortage of 4
QS - QD
3 - 7

41. 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

42. Tax Liability
Tax Incidence

43. Tax Liability
Tax Incidence
Who is legally responsible to
pay the tax to the
government

44. Tax Liability
Tax Incidence
Who is legally responsible to
pay the tax to the
government
Who actually pays the tax

45. Just because I have the Tax Liability
does not mean that I have the
Tax Incidence

46. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Demand
Supply

47. 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

48. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax

49. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax

50. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax

51. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax

52. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax

53. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax

54. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax

55. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

56. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

57. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

58. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

59. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

60. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

61. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

62. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

63. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

64. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

65. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

66. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

67. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

68. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

69. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

70. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Seller Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

71. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Seller Price
Taxes
of 20
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

72. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Seller Price
Taxes
of 20
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

73. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Seller Price
Taxes
of 20
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

74. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Pizza Tax
Buyer Price
Seller Price
Taxes
of 20
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

75. • Taxes discourage market activity
• Value creation is reduced
• Buyers and sellers share the burden
• Buyers pay more, sellers receive less
Taxes

76. Prepare for Exam 2
1. 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

77. Chapter 4
The Market Forces of Supply and Demand
market
competitive market
quantity demanded
law of demand
demand schedule
demand curve
normal good
inferior good
substitutes
complements
quantity supplied
law of supply
supply schedule
supply curve
equilibrium
equilibrium price
equilibrium quantity
surplus
shortage
law of supply and demand

78. Chapter 5
Elasticity and Its Application
elasticity
price elasticity of demand
total revenue
total expenditure
income elasticity of demand
cross-price elasticity of demand
price elasticity of supply

79. ELASTICITY EQUATION BENCHMARK
Price Elasticity
of Demand
Cross-Price
Elasticity
Income
Elasticity
Price Elasticity
of Supply
Midpoint
Formula
Inelastic | Elastic
1
Compliments | Substitutes
0
Inferior | Normal | Luxury
0 1
Inelastic | Elastic
1
%∆QD
%∆P
%∆QS
%∆P
%∆QD1
%∆P2
%∆QD
%∆I
∆Q
∆PQ
Px

80. Chapter 6
Supply, Demand, and Government Policies
price ceiling
price floor
tax incidence