THE PRICE SYSTEM

O P E N I N G A C T I V I T Y : D R A W W H A T Y O U R E M E M B E R F R O M T H E S U P P L Y A N D D E M A N D C U R V E S ( C H A R T S )

SUPPLY

• • • • Supply- offering of a given good or service for sale Quantity supply Input cost Excise tax- The state or federal tax imposed on the manufacture and sale of certain non-essential consumer goods, passed on to the customer in the form of higher prices.

• Termination- The ability of Congress to end a tribe's benefits without reason, ending its status as a sovereign nation.

SUPPLY SHIFT

• • • • • Input Costs • Price goes up to produce a good • Available technology (improved or loss of technology) • Gov. Action (tax resources) Number of sellers Change in producer price expectations Weather

HOW DOES SUPPLY AFFECT THE PRICE

• • Think our supply curve • As the supply increases so does the price • Price affects demand differently, as the price increases the demand for the item decreases Describe five factors that may cause a shift in a good’s supply curve. • Price of the good • • Number/quantity Number of sellers • Price of competition • • Technology Expectations

DEMAND

• Let’s review the demand curve • Demand is the willingness and ability to purchases a good and service. • Teens purchasing their own cell phone vs. • Demand Schedule • Perfect Pepperoni pizza • • $5 more is demanded $75 demand is less

DEMAND SHIFTS

• • • • Population (moving in or out of an area) Consumer taste (next product) Price expectation (waiting to go on sale) Income • Change in the price of a substitute good • Car comparisons

DEMAND FACTS

• “Demand Relationship” • Between price and the amount (or quantity demanded. Price affects the increase or decrease of a product and the price will determine the quantity sold • Demand does not remain constant. Sometimes, demand will increase only for a short period of time, so suppliers must be able to meet that demand quickly. • Price does not influence the left or right shift in the demand curve because the price remains constant.

QUIZ ON SUPPLY AND DEMAND

MARKET AND PRICES

• Market equilibrium- Point where quantity demanded meets quantity supplied; a balanced market. Once market equilibrium is reached, there is no incentive for the consumer or producer to change their behavior.

• Equilibrium price- All of the supplied goods are sold at a given price. • The equilibrium price is the price at which buyers are able to purchase all that they want and sellers are able to sell as much as they wish. Reaching this price satisfies the desire of both the buyer and the seller.

• Equilibrium Quantity- The amount consumers demand and producers supply when the market is in equilibrium.

MARKET AND PRICES

• • Incentive- “enticing” for both producers and consumers Contributors- People who donate money, time, etc. • Price dictate the flow of the economy • Regulate flow of goods and services • Help people make purchasing decisions • Best example Price of Gas • Price per barrel • • Price goes up • More supply Price of gas is low • Incentive for more people to buy

KEYS TO IDENTIFY

• the increase in demand led to an increase in price.

• Prices provide incentives to both consumers and producers. • The initial signal that demand for a good exceeds production in the economy is price rises. • The incentive for producers to increase supply is the potential to obtain additional profits

• Once market equilibrium is reached, there is no incentive for the consumer or producer to change their behavior. At that point, the product supply has met the needs of consumers' demands and maximized producers' profits.

NEW EQUILIBRIUM

CHANGES IN MARKET EQUILIBRIUM

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Surplus

• • situation in which quantity supplied is greater than quantity demanded Usually higher priced items like projectors •

Shortage

• • A situation in which quantity demanded is greater than quantity supplied best describes shortage Food at a lower price (demand)

CHANGES IN MARKET EQUILIBRIUM

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Search Costs

• Search costs are the financial and opportunity costs consumers pay when searching for a good or service.

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Search Cost

• If Aaron is looking for a new apartment, Aaron will miss two days of work at the supermarket to visit •

Shortage results below equilibrium price.

CHANGES IN MARKET EQUILIBRIUM

• In response to rising car traffic, demand for bicycles has increased. The new equilibrium point will show • • Bicycles sold Price • What happens when the supply of a nonperishable good is greater than the consumer wants to buy. (2 possibilities) • either the good remains unsold or the price drops • Holiday shopping (Christmas) results in: • a rapid shift to the right in a market demand curve.

MARKET QUIZ REVIEW

• Technological process has reduced the cost of manufacturing MP3 players. If demand is unchanged, more MP3 players will be sold at a lower price. • A shortage will develop when the market price is below the equilibrium price. • Use definitions to assist in quiz • • Search cost • Elena is looking for an apartment. Elena misses two days of work at the supermarket to visit several different apartments available for rent.

If the current equilibrium price for a bushel of corn is $50.00, what happens to the equilibrium price of corn if import restrictions on corn are lifted? • Go up • • Goes down Stays the same

TOPIC TEST