What Motivates the American Market Economy Worldwide?

Michelle Holmes

Econ.

11/3/11

What is the Process by Which Market Price is Determined? • Supply and demand helps determine the market price.

• Prices tell businesses what to produce.

• When an item is in demand the cost of that item rises.

• When other companies see that an item is popular or in demand they start making more of that product because they see an opportunity to make more money.

• When the demand falls, so do prices and competition.

• The result can be that the company goes out of business or is forced to start making other products or items.

How Does Domestic and International Competition in a Market Economy Affect Goods and Services Produced

and the Quality, Quantity, and Price of Those Products?

• Costs less for America to have goods and services made in or provided by other countries (China and Mexico) – Example: clothing and shoes cost less to make overseas

• Cheaper cost can = Cheaper quality

– Example: materials used are not always the best quality

• Quantity increases when cost is lower

– Example: America can afford for companies overseas to make more of a product

• Price is determined by cost of production , transportation, cost of marketing, and profit but also by Supply and Demand

– Example: sneakers made in China costs 40 dollars and sold in the U.S. for 90 dollars

What are the effects of changes in supply and/or demand on the relative scarcity,

price, and quantity of particular products?

The demand for gas for automobiles, aircrafts, and vessels remains high, therefore prices are also high.

Shoes that are trendy affect price and quantity due to demand. Ex: Crocs

Snacks that are popular with children and teens Ex: Hot Cheetos

Vocab:

• Profit is the difference between the purchase price and the costs of bringing to market.

• A free market economy is an economy in which the allocation for resources is determined only by their supply and the demand for them.

• Supply and Demand is an economic model of price determination in a market.

• Market Price is the current price at which an asset or service can be bought or sold.

• Substitutes: Two goods (C and D) are substitutes if using more of good C replaces the use of good D.

Vocab:

• Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services.

• Price Control is the establishment and maintenance of maximum price levels for basic goods and services by a government, especially during periods of war or inflation.