The Price System Chapter 21 Demand, Supply & Prices

The Price SystemThe Price System

Chapter 21Chapter 21

Demand, Supply & PricesDemand, Supply & Prices

DemandDemandDemandDemand is the amount consumers are willing is the amount consumers are willing to buy at all prices.to buy at all prices.

ConsumersConsumers control the demand-side of our control the demand-side of our economy.economy.

Must have want, willingness, & resources!Must have want, willingness, & resources!

The The Law of DemandLaw of Demand says as prices increase, says as prices increase, the quantity demanded decreases. the quantity demanded decreases.

This principle is illustrated by an This principle is illustrated by an auctionauction. The . The price increases until the number of buyers price increases until the number of buyers decreases to one. Do example!decreases to one. Do example!

DemandDemand

What is the difference between a demand What is the difference between a demand schedule & a demand curveschedule & a demand curve?

Which way does the demand curve always Which way does the demand curve always slope? Why?slope? Why?

Do Demand graphing exercises.Do Demand graphing exercises.

Set up graph using equal intervals on both Set up graph using equal intervals on both axes. Label P, Q, D, 0. axes. Label P, Q, D, 0.

Discuss the Discuss the law of diminishing marginal law of diminishing marginal utilityutility with example. with example.

Demand Schedule Vs. Demand Curve

Factors that change demandFactors that change demandChanges in the population of consumersChanges in the population of consumers– Ship deployment/returnShip deployment/return

Changes in tastes or trendsChanges in tastes or trends– Beanie babiesBeanie babies

Changes in incomeChanges in income– Minimum wageMinimum wage

Changes in expectationsChanges in expectations– Gas pricesGas prices

Changes in Changes in substitutessubstitutes– Coke vs. PepsiCoke vs. Pepsi

Changes in Changes in complementscomplements– Peanut butter & jellyPeanut butter & jelly

Elasticity of demandElasticity of demand

Elastic demand means there is a great Elastic demand means there is a great difference between quantity demanded and difference between quantity demanded and changes in price.changes in price.– Lots of competition, substitutes causes elasticity Lots of competition, substitutes causes elasticity

(Pepsi, ex)(Pepsi, ex)

Inelastic demand means quantity demanded Inelastic demand means quantity demanded varies little with changes in prices.varies little with changes in prices.– Usually lack of competition or substitutes cases Usually lack of competition or substitutes cases

inelasticity. (Gasoline, ex)inelasticity. (Gasoline, ex)

AssignmentAssignment

Read 21.3 & complete questions for p. 72.Read 21.3 & complete questions for p. 72.

Due Tomorrow!Due Tomorrow!

SupplySupplySupplySupply is the amount producers are willing to sell is the amount producers are willing to sell at all prices. at all prices.

ProducersProducers control supply-side of our economy. control supply-side of our economy.

What is the difference between a supply schedule What is the difference between a supply schedule & a supply curve& a supply curve?

Which way does the supply curve always slope? Which way does the supply curve always slope? Why?Why?

The The Law of SupplyLaw of Supply says as prices increase the says as prices increase the quantity supplied increases.quantity supplied increases.

Do Supply Graphing Exercises, p. 73.Do Supply Graphing Exercises, p. 73.

Supply Schedule Vs. Supply Curve

SupplySupplyHow does profit motive relate to the law of How does profit motive relate to the law of supply?supply?– Higher prices mean more profitHigher prices mean more profit

Market supply is the amount of a product that Market supply is the amount of a product that all producers are willing to sell at all prices.all producers are willing to sell at all prices.

Factors business consider include costs, Factors business consider include costs, competition, and consumer demand when competition, and consumer demand when businesses set prices.businesses set prices.

Factors that change Factors that change SupplySupplyChange in cost of resources: Change in cost of resources: Cost of sugar (ex)Cost of sugar (ex)

Change in productivity: Change in productivity: Labor slowdowns (ex)Labor slowdowns (ex)

Change in technology: Change in technology: Check out scanners (ex)Check out scanners (ex)

Change in government policiesChange in government policies– TaxesTaxes

– Minimum wageMinimum wage

– SubsidiesSubsidies

Change in expectations: Hurricane season (ex)Change in expectations: Hurricane season (ex)

Change in the number of suppliers or competitionChange in the number of suppliers or competition– Border Station vs. SouthlandBorder Station vs. Southland

– Food LionFood Lion

Elasticity of SupplyElasticity of Supply

Elastic supply means there is a great Elastic supply means there is a great difference between quantity supplied and difference between quantity supplied and changes in price.changes in price.– Lots of competition, substitutes causes Lots of competition, substitutes causes

elasticity (Gas stations in Moyock, ex)elasticity (Gas stations in Moyock, ex)

Inelastic supply means quantity supplied Inelastic supply means quantity supplied varies little with changes in prices.varies little with changes in prices.– Usually lack of competition or substitutes Usually lack of competition or substitutes

cases inelasticity. (Food Lion, ex)cases inelasticity. (Food Lion, ex)




Setting PricesSetting PricesProducers want high prices.Producers want high prices.

Consumers want low prices.Consumers want low prices.

Prices must be high enough to make a profit and Prices must be high enough to make a profit and low enough to attract consumers.low enough to attract consumers.

Shortages Shortages cause prices to increase. D>Scause prices to increase. D>S

SurplusesSurpluses cause prices to decrease. D<S cause prices to decrease. D<S

Where producers and consumers wants intersect Where producers and consumers wants intersect is how prices are determined. This is called the is how prices are determined. This is called the marketmarket or or equilibrium priceequilibrium price..

Graphing exercises.Graphing exercises.

Setting PricesSetting PricesPrice ceilingsPrice ceilings are limits on businesses on how are limits on businesses on how much they can charge for a good or service. These much they can charge for a good or service. These are VERY rare in our economy. Ex. Is rent controls are VERY rare in our economy. Ex. Is rent controls in NYCin NYC

Price floorsPrice floors are limits on how little businesses can are limits on how little businesses can charge for a good or service. These prices are kept charge for a good or service. These prices are kept low by low by subsidiessubsidies to the industry. These are not very to the industry. These are not very common any more. Ex. Is milk pricescommon any more. Ex. Is milk prices

Consumers and producers largely determine prices Consumers and producers largely determine prices in our economy today.in our economy today.

Setting PricesSetting Prices

What are the advantages of our What are the advantages of our price system in Capitalism?price system in Capitalism?–Prices are neutralPrices are neutral

–Prices are flexiblePrices are flexible

–Prices offer choicePrices offer choice

–Prices are familiarPrices are familiar

Practice and exit ticketPractice and exit ticket

Graph the chart at the bottom of p. 76.Graph the chart at the bottom of p. 76.– Label all 10 points!Label all 10 points!– DiscussDiscuss

Graph one of the schedules on p. 77 & Graph one of the schedules on p. 77 & label correctly. Raise your hand when label correctly. Raise your hand when done to be checked.done to be checked.

Complete the final graph on a separate Complete the final graph on a separate sheet and turn in as your exit ticket.sheet and turn in as your exit ticket.




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The Price System Chapter 21 Demand, Supply & Prices