Transcript Slide 1
PRICES??
BW: Get sheets from back and 3-hole punch
Complete Unit Warm-up (48-50)
CHAPTER 6.1
“What factors affect price?”
Objectives
How do supply/demand create equilibrium in
marketplace
What happens to prices when equilibrium is
disturbed
2 ways the govt. intervenes in markets to control
prices
Impact of price ceilings and floors on free-market
Key Terms
http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13369833-5/Flash/Ch06/Econ_OnlineLectureNotes_ch6_s1.swf
INTRODUCTION
What factors affect price?
Prices affected by laws of supply and demand
Also affected by actions of the govt.
Govt. may intervene to set min/max prices
WHAT IS EQUILIBRIUM?
•Point of balance at which qty. demanded equals qty. supplied
•At equilibrium price of a good is STABLE
EQUILIBRIUM
In order to find the equilibrium price/qty. you use
supply/demand schedules
When market is at equilibrium, both
buyers/sellers benefit
How many slices are sold at equilibrium?
DISEQUILIBRIUM: MARKET PRICE ANYWHERE
BUT EQUILIBRIUM (PRODUCES
Shortage
Causes prices to rise as
the demand for good is
greater than the
supply of the good.
2 OUTCOMES)
Surplus
Causes a drop in
prices as the supply
for a good is greater
than the demand for
good.
oWhich would be an true of when our concession stand
starts selling slices of pizza and popcorn for 1/3 the price
towards ends of games?
oSurplus
oAnswer 2 ?s on 136
GOVERNMENT INTERVENTION
Price Ceilings (maximum price charged for good)
Rent control
Price ceiling on apt. rents
Prevents inflation during housing crises
Helps poor cut housing costs
Can lead to poorly managed buildings bc of upkeep
Price Floors (minimum price set)
Minimum wage is best example
Affects demand/supply of workers
Price Supports in Agriculture
Govt. buys excess crops when prices fall below certain level
Attempting to create demand
LESSON CLOSING
HW for tomorrow
Critical Thinking
Answer 8-10
Workbook; 48,49, and 91
CHAPTER 6.2
Finish up 8-10 Critical Thinking from Sect. 1
SECT. 1 CRITICAL THINKING
What impact does shortages have on consumers?
How does effect differ for producers
Lower prices to increase demand
Why might producer choose to keep price same?
Producers can raise prices or increase production to
earn profits
What action will a producer usually take when
price is higher than equilibrium price?
May have to wait to buy or not find the goods
If product can be stored easily till demand rises
Argument for/against rent control
Affords housing to poor; causes housing shortages
CHAPTER 6 SECTION 2
“How
do changes in supply and
demand affect equilibrium?”
Objectives
Why free market naturally tends to equilibrium
How a market reacts to increase/decrease in supply
How a market reacts to increase/decrease in demand
Key Terms
http://www.pearsonsuccessnet.com/snpapp/iText/prod
ucts/0-13-3698335/Flash/Ch06/Econ_OnlineLectureNotes_ch6_s2.swf
INTRODUCTION
How do changes in supply and demand affect
equilibrium?
Changes in supply/demand cause prices to go up and
down, which disrupts the equilibrium for a good.
In a free market, price and quantity tend to move
toward equilibrium whenever they find themselves in
disequilibrium
EQUILIBRIUM
When a market is in disequilibrium it either has
shortage or surplus.
Shortages
Both will eventually lead toward equilibrium
Causes a firm to raise its prices. Higher prices cause
the qty. supplied to rise and demand to fall until they
are equal again.
Surpluses (opposite)
Cause a firm to drop its prices. Prices cause qty
supplied to fall and demand to rise until equilibrium
is restored
MARKET REACTIONS
Increase in Supply
Shift in supply curve will change the equilibrium
price and qty.
Causes the market to move toward new equilibrium
price
Example is Digital Camera (6.5 pg. 142)
Causes shift in curve to right
“Moving Target”
Equilibrium is in constant motion as market conditions
change
As supply/demand increases/decreases a new equilibrium is
created.
MARKET REACTIONS
Decrease in Supply
Shifts curve to left, results in higher market price
and decrease in qty. sold
Factors that lead to decrease
Increase in costs of resources to produce good
Increase in labor costs
Increase in govt. regulations
MARKET REACTIONS
Increase in Demand
Fads often lead to increases in demand
Causes curve to shift to right
Fads cause shortages to appear in various forms
Empty selves
Long lines to buy small supply of product
Search costs (driving multiple places searching)
Restoring Equilibrium
A fad will reach a peak, prices will drop
Shortage becomes a surplus, curve shifts back left
and restores original price/qty.
New technology can also decrease consumer demand
by creating better substitute.
LESSON CLOSING
HW: Critical Thinking 6-9
Workbook pgs. 50, 99
I’ll be gone tomorrow
All wasted time will be written down by sub and
you will make it up Monday
2 Tasks for tomorrow
Cornell Notes Section 3
Personal Finance Work on Netbooks!
CHAPTER 6.3
SECTION 3
Objectives
Roles that prices play in free market
Advantages of price-based system
How price-based system leads to a wider choice of
goods and efficient allocation of resources
Relationship b.t. prices and profit incentive
Key terms
http://www.pearsonsuccessnet.com/snpapp/iText/prod
ucts/0-13-3698335/Flash/Ch06/Econ_OnlineLectureNotes_ch6_s3.swf
INTRODUCTION
What roles do prices play in a free market
economy?
Prices are used to distribute goods/resources
throughout the economy
Prices play other roles:
Serving as a language for buyers/sellers
Serving as incentive for producers
Serving as a signal of economic conditions
PRICE AS AN INCENTIVE
Prices provide a standard of measure of value
throughout the world
Prices act as a signal that tells producers/consumers
how to adjust
Prices tell buyers/sellers whether goods are in short
supply or available
Price system is flexible and free, and it allows for a
wide diversity of goods/services
PRICE AS A SIGNAL
Prices can act as a signal to producers/consumers
High price tells producers that a product is in
demand and they should make more
Low price tells producers that a good is being
overproduced
High price tells consumers to think about their
purchases
Low price tells consumers to buy more of a product
FLEXIBILITY OF PRICES
Prices are flexible, meaning they can be
increased to solve problems of shortage and
decreased to solve problems of surplus
Raising prices is one of the quickest ways to solve
a shortage. It reduces quantity demanded and
only people w/enough money will be able to pay
higher prices.
FREE MARKET V. COMMAND
Free market systems based on prices cost nothing
to administer
Central planning, on the other hand, requires a
number of people to decide how resources are
distributed
Unlike central, free market pricing is based on
decisions made by consumers and suppliers
CONSUMER CHOICES
In a free market
Prices help consumers choose among similar products
Allow producers to target consumers with products
most desired
In a command economy
Production is restricted to a variety of each product
Results in fewer consumer choices
RATIONING AND BLACK MARKET
In command economy, or in a Free Market during
war, shortages are common.
One response is rationing
Often business can then be conducted on black
market to bypass rationing
Ex: WWII
US govt. used rationing to control shortages
Family given tickets to buy the shortage items, couldn’t
legally buy them again until new tickets issued
EFFICIENT RESOURCE ALLOCATION
Free market system
Allows for efficient resource allocation
Factors of production used for most valuable purposes
Works with the Profit Incentive
Producers (firms) will use resources available to ensure
greatest amount of profit
Profit Incentive
Wealth of Nations Adam Smith wrote that businesses
do best when they provide what people need
Financial rewards (profits/deals) motivate people
FREE MARKET PROBLEMS
What circumstances can system fail to allocate
resources efficiently?
Imperfect competition
Negative Externalities
Can affect prices, then affecting consumer decisions
Side effects of production; unintended costs
Imperfect Information
Prevents market from operating smoothly