Transcript ECON-2.10-13.12 Market Intro

AGENDA Fri 2/10 & Mon 2/13
•Review HW & Complete Wkshts
•Supply Quiz
•QOD #12: Market at Shawshank
•Where “X” marks the spot
•Moving to Equilibrium
•S&D Poster Project Overview (Planning
session)
•HW: pg 119 #1-8, pg 130 #1-5
•Part 2 Looking for S&D Project DUE: Tues 2/14 & Wed 2/15
•S& D Poster Project
•Study for Market Quiz
The Market @ Shawshank
 In a prison economy, goods are often traded in return for
cigarettes rather than for dollars.
 Why do you think that cigarettes, instead of dollars, are used as
a medium of exchange in a prison?
 Why aren’t cigarettes commonly used for purchasing goods in
our “outside” economy?
 The fee that Red charges to smuggle goods into
Shawshank Prison is set to cover his actual costs to
supply the good plus the expected “risk” cost.
 What happens to the P and Q of the goods supplied to inmates
compared to if goods were not restricted in the prison
economy?
 Would you expect prison life to be as bad if inmates were
allowed to freely participate in market exchanges as in the
“outside” economy? Explain.
Putting S & D Together = Market
• Equilibrium = QD = Qs
– the point where the supply
and demand curves intersect
– Equilibrium quantity is the
quantity of a good suppliers
and consumers are willing
and able to offer for sale and
purchase, respectively
– Equilibrium price is the price
at which both suppliers and
consumers are willing and
able to make the exchange
Shortage = QD > QS
Surplus = QS > QD
Moving to Equilibrium
• Why does the price rise when there is a shortage?
– some buyers will not get the products they want to buy
and will be willing to offer a higher price
– higher prices will motivate suppliers to produce more
• Why does price fall when there is a surplus?
– with a surplus, suppliers are not able to sell all of their
product
– the expenses of storing inventories of unsold goods will
cause the seller to lower his price in order to reduce the
surplus and/or reduce future output