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/0-13-369833-5/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 2 OUTCOMES)
Shortage Causes prices to rise
as the demand for good is greater than the supply of the good.
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?o Surplus
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 6.2Finish up 8-10 Critical Thinking from Sect. 1
SECT. 1 CRITICAL THINKING
What impact does shortages have on consumers? May have to wait to buy or not find the goods
How does effect differ for producers Producers can raise prices or increase production
to earn profits What action will a producer usually take
when price is higher than equilibrium price? Lower prices to increase demand
Why might producer choose to keep price same? 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/products/0-13-369833-5/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. Both will eventually lead toward equilibrium
Shortages 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/products/0-13-369833-5/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
Can affect prices, then affecting consumer decisions Negative Externalities
Side effects of production; unintended costs Imperfect Information
Prevents market from operating smoothly