1. The Market for Low-Carb Foods
Three important points here warrant special attention.

• Consumer sovereignty: Through their buying decisions, consumers determine what the market system will produce.
  
  

Teaching Strategy: Use the example of Coca-Colas attempt to reformulate its recipe to make the point that consumers call the shots in the market system.

• Profit and the allocation of resources: Resources will be used in endeavors that generate profits to the producer, which derive from meeting consumer wants.
  
  

Teaching Strategy: Demonstrate sequentially through the low-fat/low-carb example how producers have responded to changing consumer preferences.

• The flow of resources: Profit incentives ensure that resources flow to their most productive use.
  
  

Teaching Strategy: Point out that people who own resources will try to find uses for their resources that yield the highest possible return. A good example is how people allocate their financial resources in financial markets.


2. The Labor Market
Labor market equilibrium and compensating wage differentials are concepts that require emphasis.

• Labor market equilibrium: The market wage is determined by the intersection of labor demand and supply (Figure 3).
  
  

Teaching Strategy: Generate a market supply curve by polling your students to see how many would be willing to work at a local McDonalds at various wage rates.

• Compensating wage differentials: Because firms differentiate among workers and workers differentiate among firms and jobs, there is more than one equilibrium wage level. Compensating wage differentials refer to wage differences required for making up for high risk or poor working conditions.
  
  

Teaching Strategy: Discuss why a coal miner earns a higher wage than a schoolteacher. Cite Figure 4. The equilibrium differential is the extra compensation a worker receives for undertaking greater risk.

People differ with respect to training, education, and abilities. Expected higher incomes induce people to acquire more skills and education, that is, more human capital.

Teaching Strategy: Discuss the question, is college worthwhile? This should generate a lively discussion among students.


3. Market Intervention: Medical Care, Rent Controls, and Agricultural Price Supports
The market for medical care: Because the demand for health care has risen more than the available supply, health care costs have increased.

1. Demand increase
   
   
2. There are three reasons for this rise in demand:
   
   
3. The aging populationThe population is getting older on the average, and the elderly use four times more health care per capita than the rest of the population does.
   
   
4. The financing mechanismMedicare, a federal program, provides health care for the elderly and disabled. Medicaid, a federal-state program, provides health care for the poor.
   
   
5. New technologiesThese procedures increase medical costs but, coupled with third-party payers (Medicare and insurance companies), also increase the demand for medical care.
   
   

Teaching Strategy: Explain that in the next 20 to 35 years, as baby boomers retire, the demand for medical care will increase even more. Also note, two-thirds of all medical expenditures in the United States occur in the last six months of life.

Teaching Strategy: Show that as health care costs increase, the supply curve shifts upward, thereby increasing prices all the more (Figure 7).

• Subsidies are grants of money given to help produce or purchase a specific good or service.
  
  

Teaching Strategy: The text introduces the example of Georgias Hope Scholarship program. If you teach at a public institution, ask students what is the tuition at a comparable institution that is a private institution (ask the opposite if you teach at a private college). Ask why there is such a difference in price. Show the impact of a subsidy to producers (public colleges), shifting the supply curve to the right. Ask students which they prefer, direct subsidies to students or to institutions.

1. Price ceilings: The market for rental housing
   
   
2. In reality, it is common for quantities demanded and quantities supplied not to be equal. Situations where the price is not allowed to decrease below a certain level or not allowed to rise to its equilibrium level are not uncommon. A price ceiling is the situation where the price is not allowed to rise to its equilibrium level.
   
   

Teaching Strategy: Ask your students what would happen to the supply of health care services if the government put a price ceiling on the health-care prices.

1. Price floors: The market for agricultural products
   
   
2. A price floor is the situation where the price is not allowed to decrease below a certain level.
   
   

Teaching Strategy: Ask your students what would happen to the supply of U.S. cars if the government put a price floor on the car prices to support the U.S. auto producers.

1. A tariff is a tax on goods and services purchased from foreign suppliers.
   
   

Teaching Strategy: Ask your students why government would impose a tariff. (Protection of domestic producers, generate revenue, and retaliation against unfair trade practices are the usual reasons.) Ask your students who benefits and who loses when tariffs are imposed. Note how the benefits are concentrated and the costs diffused among all consumers.