Transcript PRICES
CHAPTER 6: PRICES SECTION 1: COMBINING SUPPLY AND DEMAND A Balanced Market • Equilibrium—the point at which quantity demanded and quantity supplied are equal. S $ D QTY EXCESS DEMAND • Qty demanded is more than quantity supplied • When the actual price in a market is below the equilibrium. – Buyers encouraged – Sellers discouraged • Sellers will continue to raise prices until demand diminishes – Search for the highest price market will bear. S $ EXCESS QTY D EXCESS SUPPLY • Occurs when quantity supplied exceeds quantity demanded. • Any price above the equilibrium point. EXCESS S $ D QTY Price Ceiling • The price is held below the equilibrium price so it will not climb higher. ( A price ceiling is created) •Rent in large cities can be like this to make sure the price is still affordable •Example pg 129 S $ D QTY Price Floor • The price is not allowed to drop below a certain price. ( A price floor is created) •Examples are minimum wage and for corn. A low point is established, ensuring that workers and farmers will get at least a certain amount for their product. S $ D QTY SECTION I ASSESSMENT • Section 1: 1-4, 6-7 • Worksheet • End of Chapter: 1-8 REPORT • Select one of the Fortune 500 companies, as listed—no duplicates—first come, first served. • 3 page report—taking one product/product line from this company and analyzing how they use/used supply and demand to determine the price level of the product. REPORT • Parts of the report: – Brief company and product history. – Price history—make sure you compare to size of the product when necessary. – How has market equilibrium changed and how did this affect the supply and demand for the product in question. What made these changes—be specific – What happened after, or what is going to happen with this product. – Include a graph showing the effects that shifts in supply and demand had on the product. CHAPTER 6: PRICES SECTION 2: CHANGES IN EQUILIBRIUM Market Scenario #1 • Producers of the cassette tape after the introduction of the cd player. • What caused the shift S¹ $ D¹ QTY Market Scenario #2 S¹ $ D¹ QTY • The government cuts back the taxes on diesel fuel— what happens for Van Wyk Trucking? • What caused the shift Market Scenario #3 •It has been reported that coconut oil is found to be the elixir needed for youthful health and appearance. S¹ $ •What caused the shift? D¹ QTY Market Scenario #4 S¹ The GI Joes with the kung fu grip is “the” toy to have as Christmas approaches. $ What causes the shift? D¹ QTY CHAPTER 6: PRICES SECTION 3: THE ROLE OF PRICES The Role of Prices •The free market economy is the most efficient way to distribute, regulate, and allocate goods. This is done with prices •Imagine what it would be like without prices—trying to acquire products and services. Advantages of Prices • Price as an incentive – Prices serve as a sign to buyers and sellers. – How to adjust. – Direction to adjust Advantages of Prices • Prices as Signals – When to get into the market and when to get out. – Consumers— when to buy and when to wait. Advantages of Prices • Flexibility – Prices are used to adjust supply. Easier than changing production. – Supply Shock—a sudden shortage of a good – Rationing—a system of allocating scarce goods and services using criteria other than price. Advantages of Prices • Price System is free – No administration costs – Decisions made by dollar vote vs. a controlled economic system. Variety of Choices • Many choices of price and quality vs. a command economy. • Price controls rarely necessary in market economy. • Black Market-allows consumers to pay more so they can buy a good when rationing makes it otherwise unavailable. Market Problems • Imperfect competition – Cause high prices • Spillover costs (externalities)—costs of production that affect people who have no control over how much of a good is produced. • Imperfect information Ty Beanie Babies • http://www.aboutbeanies.com/marketing.html SECTION II & III ASSESSMENT • Section 2: 1-4 • Section 3: 1-4,6 • End of Chapter questions—9-13 Graphically show 14 & 15, 17