Prices

Content ObjectiveToday I will evaluate the system of market prices by answering two comprehension questions.

Warm upWhat are some signals we have to pay attention to every day?

What is a price?

PriceThe monetary value of a product as established by supply and demand

How do high prices signal buyers?How do low prices signal producers?

Market prices are:Neutral- like a compromiseFlexible- can absorb “shocks”Easy- you know what $50 meansCheap- no cost to administer

Problems with rationingHow could gas be rationed in the US?

How much does rationing cost?Will the system be misused?Would you have incentive to produce?

Prices as a systemWhy would Ford Motor Company offer $5000 rebates on Expeditions?

Without pricesHow does an economy function without prices?Rationing

Govt. decidesCoupons

What are the problems with rationing?

SurplusSupply is greater than the demand

What is the opposite of a surplus?

ShortageDemand is greater than the supply

Equilibrium PricePrice determined by supply and demand

Think: What could disrupt an equilibrium price?

Change in SupplyAgriculture

WeatherPests

Change in DemandOil

China and IndiaHurricanes

Price CeilingsRent control- governments prevent equilibrium pricesMinimum upkeepBest units converted to condos or

officesBusinesses desert the area

What might you do if the building you owned was subject to rent control?

Price FloorsMinimum wageProvides

equity

Is the minimum wage good or bad for the economy?

AgricultureTarget prices and deficiency payments

Loan payments or crop harvestGovt. acquired

huge surplus of foodWho gets surplus govt. food?

Land banks

Markets TalkThe stock market is an indicator of good or bad policiesWhat happened

to the stock market when Pres. Obama was reelected?

How is price determined on eBay?

What has eBay done to attract more shoppers?

Exit ticket- Ebay