Transaction Costs and Asset Prices: A Dynamic Equilibrium ...
Prices and Equilibrium
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Transcript of Prices and Equilibrium
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Prices and EquilibriumMr. Bammel
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Prices
• The monetary value of a product as established by supply and demand.
• Turn to a partner in the room and have a discussion. Answer the questions: • Are prices fair? • Should the government help dictate prices? • In what situations do you think government should dictate
prices?
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Advantages Prices
• Prices link the producers and consumers; and allow allocation of goods and services to be smooth and efficient.
• Advantages of prices• There is neither a favor in producers, nor consumers• Prices are flexible and allow economy to accommodate change• No Cost in administration• Familiar and easily understood
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Without Price
• What would be done if we did not use price as a means to distribute goods and services? What options exist?
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Rationing
• A system under which an agency such as the government decides everyone’s “fair” share.
• People receive Ration Coupons, which is a ticket or a receipt that entitles the holder to obtain a certain amount of a product.
• What are all the problems with rationing?
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Prices as a System
• After reading the information on page 140 about prices as a system, explain in your own words how prices act as a system which tells the market where resources should be allocated.
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Graphing Market Demand and Supply Curves
• Take the large piece of paper and fold it in half three separate times to create 8 squares/sections for use of drawing graphs.
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Square #1: Market Equilibrium
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Use the graph to draw in a point labeled “E” where one would find Market equilibrium.
• Explain off to the side what Market equilibrium is and what Price Equilibrium means.
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Square #2: Surplus
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Find a price on the graph that would display a surplus of a product.
• What is a surplus?• What will tend to happen if a surplus does exist?
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Square #3: Shortage
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Find a price on the graph that would display a shortage of a product.
• What is a shortage?• What will tend to happen if a shortage does exist?
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Square #4: Changes in Supply
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Use a different color pen/pencil and draw a line representing an increase in Supply. Using the same color pen/pencil, write down what happens to the price and the quantity because of this increase in supply.
• Use a different color pen/pencil and draw a line representing an decrease in Supply. Using the same color pen/pencil, write down what happens to the price and the quantity because of this decrease in supply.
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Square #5: Changes in Demand
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Use a different color pen/pencil and draw a line representing an increase in demand. Using the same color pen/pencil, write down what happens to the price and the quantity because of this increase in demand.
• Use a different color pen/pencil and draw a line representing an decrease in demand. Using the same color pen/pencil, write down what happens to the price and the quantity because of this decrease in demand.
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Square #6: Price Ceilings
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Use the graph to display a Price Ceiling.• Explain what a price ceiling is and what is created by a
price ceiling.• Explain the example of Rent Controls and how it must
abide by price ceilings.
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Square #7: Price Floors
• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.
• Use the Graph to display Price Floors.• Explain what a price floor is and what is created by a
price floor.• Explain the example of minimum wage and it must abide
by a price floor.