Transcript Setting Prices

The Price System
Chapter 21
Demand, Supply & Prices
Demand
Demand is the amount consumers are willing
to buy at all prices.
Consumers control the demand-side of our
economy.
Must have want, willingness, & resources!
The Law of Demand says as prices increase,
the quantity demanded decreases.
This principle is illustrated by an auction. The
price increases until the number of buyers
decreases to one. Do example!
Demand
What is the difference between a demand
schedule & a demand curve?
Which way does the demand curve always
slope? Why?
Do Demand graphing exercises.
Set up graph using equal intervals on both
axes. Label P, Q, D, 0.
Discuss the law of diminishing marginal
utility with example.
Demand Schedule
Vs.
Demand Curve
Factors that change demand
Changes in the population of consumers
– Ship deployment/return
Changes in tastes or trends
– Beanie babies
Changes in income
– Minimum wage
Changes in expectations
– Gas prices
Changes in substitutes
– Coke vs. Pepsi
Changes in complements
– Peanut butter & jelly
Elasticity of demand
Elastic demand means there is a great
difference between quantity demanded
and changes in price.
– Lots of competition, substitutes causes
elasticity (Pepsi, ex)
Inelastic demand means quantity
demanded varies little with changes in
prices.
– Usually lack of competition or substitutes
cases inelasticity. (Gasoline, ex)
Assignment
Read 21.3 & complete questions for p. 72.
Due Tomorrow!
Supply
Supply is the amount producers are willing to
sell at all prices.
Producers control supply-side of our economy.
What is the difference between a supply
schedule & a supply curve?
Which way does the supply curve always
slope? Why?
The Law of Supply says as prices increase the
quantity supplied increases.
Do Supply Graphing Exercises, p. 73.
Supply Schedule
Vs.
Supply Curve
Supply
How does profit motive relate to the law of
supply?
– Higher prices mean more profit
Market supply is the amount of a product that
all producers are willing to sell at all prices.
Factors business consider include costs,
competition, and consumer demand when
businesses set prices.
Factors that change Supply
Change in cost of resources: Cost of sugar (ex)
Change in productivity: Labor slowdowns (ex)
Change in technology: Check out scanners (ex)
Change in government policies
– Taxes
– Minimum wage
– Subsidies
Change in expectations: Hurricane season (ex)
Change in the number of suppliers or competition
– Border Station vs. Southland
– Food Lion
Elasticity of Supply
Elastic supply means there is a great
difference between quantity supplied and
changes in price.
– Lots of competition, substitutes causes
elasticity (Gas stations in Moyock, ex)
Inelastic supply means quantity supplied
varies little with changes in prices.
– Usually lack of competition or substitutes
cases inelasticity. (Food Lion, ex)
Assignment
Read 21.4 & complete questions for p. 74.
Due Tomorrow!
Setting Prices
Producers want high prices.
Consumers want low prices.
Prices must be high enough to make a profit
and low enough to attract consumers.
Shortages cause prices to increase. D>S
Surpluses cause prices to decrease. D<S
Where producers and consumers wants
intersect is how prices are determined. This
is called the market or equilibrium price.
Graphing exercises.
Setting Prices
Price ceilings are limits on businesses on
how much they can charge for a good or
service. These are VERY rare in our
economy. Ex. Is rent controls in NYC
Price floors are limits on how little businesses
can charge for a good or service. These
prices are kept low by subsidies to the
industry. These are not very common any
more. Ex. Is milk prices
Consumers and producers largely determine
prices in our economy today.
Setting Prices
What are the advantages of our
price system in Capitalism?
–Prices are neutral
–Prices are flexible
–Prices offer choice
–Prices are familiar
Practice and exit ticket
Graph the chart at the bottom of p. 76.
– Label all 10 points!
– Discuss
Graph one of the schedules on p. 77 &
label correctly. Raise your hand when
done to be checked.
Complete the final graph on a separate
sheet and turn in as your exit ticket.
Assignment
Read 21.4 & complete questions for p. 74.
Due Tomorrow!