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://

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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