Transcript The Role of Prices - Doral Academy Preparatory

Ch.6 Prices
Section 1 (part 1),
Combining Supply
and Demand
Cesar Garrido
Period 2
Ms.Mitat
http://www.cartoonstock.com/directory/s/supply_and_demand.asp
Balancing the Market
Equilibrium is the point of balance between price and quantity.
* To find the equilibrium price and equilibrium quantity, just
look at the price at which the quantity supplied equals the
quantity demanded.
We can also illustrate equilibrium with a supply and demand graph.
http://www.cartoonstock.com/directory/s/see-saw.asp
Disequilibrium
Disequilibrium happens if the market price or quantity supplied is
anywhere but at the equilibrium. This also happens if the quantity
supplied is not equal to the quantity demanded.
- Excess Demand
Excess demand occurs when quantity demanded is more than the
quantity supplied.
http://www.fma.ie/mediabytes_july08-1.htm
Excess Supply
Excess supply occurs when quantity supplied is more than quantity
demanded.
Whenever the market is at disequilibrium and prices are flexible,
market forces will push the market towards equilibrium.
Excess
Supply
http://www.ft.com/cms/s/0/29a40a90-5d6f-11dd-8129-000077b07658.html#axzz1HHPWD9Wf
Yeniffer Sanchez
Graphics:
Ch.6
http://www.wachecon.com/mircoeco
nomics.htm
Section 1, Part 2.
-“Price Ceilings”
- “The Cost of Price Ceilings”
- “Ending Rent Control”
-“Price Floors”
-Resources: The textbook
http://garyjmorecraft.wordpress.com/
“Price Ceilings”
Top price that the government implant for
the sellers to charge a good or service.
-They decides what’s the maximum
price.
-Government limits the seller’s
income.
- Price ceiling increases the quantity
supplied.
“Price
Ceilings”
Government places price ceiling on some
goods that are considered “essential" and
might become too expensive for some
consumers.
Price Ceiling.
Graphic:
http://iamatvjunkie.typepad.com/i_am
_a_tv_junkie_a_blog_f/2008/08/guess
-who-cant-go-to-the-emmys-becausethey-dont-have-the-cash.html
Goods and services.
Too Expensive.
“The Cost of Price Ceiling”
Long waiting lists.
Discrimination by Landlords:
They allocate the
Scarce supply of
Apartments among
Wealthy people rented
apartments at prices much less
than maker value.
Graphics:
http://fairhealthconsumer.org/reimbursementseries/101costsh
aring.aspx
http://www.leahrealestateli.com/New_York/Long_Island/Nass
au_County_Rental_Apartment_Search/Nassau_County_Apar
tments_for_Rent.html
The many people
Who want them.
“The cost of price ceilings”
Since the rents controls landlord’s profit,
they try to increase their income by cutting
cost.
Why?
Because of the
waiting list to get
new apartments.
*The cost of price ceilings for
renters.
Landlords loose
interest in working
hard to attract
renters.
Renters would
wait months to
have routine
problems fixed.
Graphics ; http://southwindapartments.info/
“Ending Rent Control”
Benefits:
-Increases the number of apartments on the
market by 10 000.
-Exceed the costs suggesting that there are
better ways to help poor households find
affordable housing.
Graphics: http://www.ffog.net/polemic-of-rentcontrols-201110273.html
“Price Floor”
Minimum Price, set by the government
that must be paid for a good and services.
-The government wants
Minimum Price
sellers to receive some
minimum reward for their
efforts.
For
Goods and
Services.
Graphics :http://elcomusa.wordpress.com
The end.
Chapter 6 Section 2
Focus: When a supply/demand curve
shifts, so does the equilibrium. Market
price and quantity then move toward the
new equilibrium
How do price and quantity move toward
equilibrium?
 If there is limited
 If there is excess
supply the prices
supply the prices are
will fall and the
high and the demand
demand will begin to
will begin to decrease
rise until the two
until the two factors
equal each other
factors equal
2 factors that can cause disequilibrium:
shift in entire demand curve or supply
curve

Changes in Price Factors that include
shifting supply curve:




advances in technology
new government taxes and subsidies
changes in the prices of the raw materials
labor used to produce goods
 Market equilibrium occurs at intersection of
supply curve and demand curve.
 So shift in supply curve creates new
equilibrium and market forces will begin to
approach that equilibrium of price and
quantity sold.
Shift in Supply Advances
 Understanding a Shift in
Supply Advances in
production have allowed
for manufactures to offer
more products at lower
prices causing the prices to
fall and the supply curve to
shift.
Finding a
New Equilibrium
 Surplus: when
quantity supplied
exceeds quantity
demanded at a
specific price.
 When supply
increases, prices
fall and quantity
demanded
increases to reach
a new equilibrium.
 Change moves along the demand curve,
does not shift the entire thing. Price
falls to a point where quantity supplied
and quantity demanded are equal; and
excess supply is not a problem.
 When supply increases, and the entire
supply curve shifts to the right.
Changing Equilibrium
 Quantities demanded and supplied are
higher, and the prices are lower.
 Curve is continually shifting and
equilibrium changes as market
conditions change.
 Frequent price
changes, sales, and
rebates are designed
to keep the machines
moving out of stores
as fast as new
machines come in.
Photo References
Slide 1
 - money.howstuffworks.com
Slide 2
 shutterstock.com
Slide 3
 besttattoooyakuza.blogspot.co
m
 mypersonalfinancejourney.com
 rictec.com.sg
 nyworkerscompensationalliance
.org
Slide 4
 Sparknotes.com
Slide 5
 Cartoonstock.com
Slide 6
 Cartoonstock.com
Slide 8
 Vermontel.net
Slide 9
 Superstock.com
Slide 10
 johnkstuff.blogspot.com
Section to be continued…
Chapter 6

Section 3:
The Role of Prices
The Role of Prices

Prices help move land, labor, and capital into the hands of
producers, and finished goods into the hands of buyers.

The process of buying things such as presents would be way more
complicated without prices.

Without prices the supplier would have no consistent and accurate
way to measure demand for a product.


Graphic: google.com
Information: Economics textbook

Everyone (buyers and sellers) looks at prices to find out info on
supply and demand of goods.

Rising prices in a market will cause existing firms to produce
more goods and will attract new firms to enter a market .

High prices indicate producers that a specific good is in
demand; therefore they should use their resources to produce
more.
Graphics: google.com
Information: Economics textbook

Low price means that a good is being overproduced.

For consumers, a low price indicates that they should buy
more goods. It also indicates that the good has a low
opportunity cost and offers a good buying opportunity.

High price is a red light to stop and think carefully before
buying.

Prices are flexible.

Prices can be increased to solve excess demand, or
decreased ton eliminate excess supply.
Graphics: google.com
Information: Economics textbook

- Supply shock is a sudden shortage of a good.

- Rationing is dividing up goods and services using
criteria other than price.

- Free market pricing distributes goods through
millions of decisions made daily by consumers and
suppliers.

- A benefit of a market-based economy is
diversity of goods and services consumers are able
to buy.
Graphics: google.com
Information: Economics textbook
A Wide Choice of Goods

Market-Based: Price gives suppliers a
way to allow consumers to choose
among similar products. Also allows
producers to target a audience.

Example: If someone saw a sweater for $20.00,
another sweater that was the same look just
different material for $40.00. A person might go for
the cheaper sweater to save money.

Source: Textbook.
Picture source: Google.com


Command Economy: One organization
decides what goods are produced and how
much stores will charge for these goods.

Example: They restrict production to a few varieties of each product.

Source: textbook
Picture Source:


http://www.google.com/imgres?imgurl=http://www.wtec.org/loyola/displays/fh6_1.gif&imgrefurl=http://nykcsports.com/bjJB7dySye/&usg=_
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57&ei=pending&prev=/images%3Fq%3Dcommand%2Beconomy%2Bdiagram%26um%3D1%26hl%3Den%26biw%3D1420%26bih%3D71
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d=1t:429,r:5,s:28&tx=111&ty=41
Rationing and Shortage

During a shortage the government decides the
price.
 During WWII, choices in products were limited
so the government began to control the
distribution of goods.


Source: Textbook
Picture Source:
http://www.google.com/imgres?imgurl=http://blog.bioethics.net/rationing.jpg&imgrefurl=http://blog.bioethics.net/2009/09/&usg=__Fio
hNzxRaIT8dQHTdO_xz5R17s=&h=450&w=357&sz=41&hl=en&start=0&zoom=1&tbnid=z58SzsRTS4tTiM:&tbnh=140&tbnw=111&ei=Ko2ITbPOFeqE0QGh2K3r
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Q&page=1&ndsp=30&ved=1t:429,r:0,s:0
The Black Market

Black Market: When people conduct business
without regard for government controls on
price or quantity.
 Black Markets that include trade is illegal and
strongly discouraged.


Source: Textbook
Picture source:
http://www.google.com/imgres?imgurl=http://www.cartoonstock.com/newscartoons/cartoonists/mba/lowres/mban2655l.jpg&imgrefurl=http://www.cartoonstock.com/
directory/b/black_market.asp&usg=__m5Tw0_3mLBJUo6T_-tc5e_UyQU=&h=400&w=349&sz=32&hl=en&start=0&zoom=1&tbnid=nBqIOmXzz7O_YM:&tbnh=136&tbnw=119&ei=pending&prev=/images%3Fq%3Dwhat%2Bis%2Ba
%2Bblack%2Bmarket%26um%3D1%26hl%3Den%26biw%3D1420%26bih%3D715%26tbs%3Disch:1&um=1&itbs=1&iact=rc&dur=281&oei=OJGITcvEH4eDtgeP8
PCJDg&page=1&ndsp=30&ved=1t:429,r:19,s:0&tx=59&ty=88
Efficient Resource Allocation
Efficient Resource Allocation: Economic
resources – land, labor, and capital – will
be used for their most valuable purpose.
 Changes take place without any central
control. The people decide.


Source: textbook
Prices and the Profit Incentive

Depending on a situation it makes producers
choose prices.

Example: If a heat wave were to be on its way.
There would be a high demand for Air Conditioners
and fans. So producers would raise prices to reach
the incentive.
Source: textbook
Picture source:
http://www.google.com/imgres?imgurl=http://s4.hubimg.com/u/62067_f520.jpg&imgrefurl=http://hubpages.com/hub/Antiprice_Fixing_Decision_Overturned_by_US_Supreme_Court&usg=__Cu7eJVSsKPgfTx6joHjnTQZjamw=&h=600&w=520&sz
=28&hl=en&start=0&zoom=1&tbnid=aXFqtur0mM_DM:&tbnh=128&tbnw=111&ei=19yJTZvwJ8K1tgfHx4joDQ&prev=/images%3Fq%3Dprice%2Bdecision%26hl%3Den%
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page=1&ndsp=27&ved=1t:429,r:0,s:0&tx=51&ty=88
Market Problems

1- Imperfection competition, affect prices
higher prices can affect consumer decisions.
 2- Spillover costs (externalities) cost of
production, (air and water pollution)
 3- Imperfect information- prevent a market
from operating smoothly.

Source: Textbook

Picture source: http://www.google.com/imgres?imgurl=http://www.primary-intel.com/wp-content/uploads/highlight_market-
problems.jpg&imgrefurl=http://www.primary-intel.com/7-steps-to-identifying-validating-marketproblems/&usg=__KhDWwLGlsaIelytKcrLbLujukV8=&h=200&w=325&sz=19&hl=en&start=0&zoom=1&tbnid=EyuygM5j5W6LpM:&tb
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