Transcript Price

Brief Response:
Use the Image, p. 128
• Given other factors, is it worth producing…..
explain
• 110 units?
– Yes,
– Marginal product is still high, total profit is high.
• 145 units?
– Maybe,
– Marginal is negative; profit is falling, but still
possible.
Chapter 6: Prices and Decision
Making
Section 1 p. Terms:
• Price
• 137 the monetary value of a product as established
by supply and demand
– Communicate information to buyers and sellers
– Provide incentive to buyers and sellers
• What kind of economy uses supply and demand to
set price?
– Free-market (free-enterprise, market-economy)
Rationing
• 139 a system where an agency, most likely the
government, decides how much each person
is entitled to
– Fair share
• Ration coupon
• A ticket prescribing how much a person’s
ration is and when they can have it.
Rebate
• 140 a partial refund of the original price of a
product.
• Usually from the maker
• Consumer must mail in a certificate with a
receipt
Section 2 Terms:
• Economic model
• 143 a set of assumptions that can be
– listed in a table
– Illustrated with a graph
– Stated algebraically
• Helps to
– Analyze behavior
– Analyze outcome
Market equilibrium
• 143 when prices are
– relatively stable
– Goods/services supplied equally to demand
– EC: Is the US at a reasonable market equilibrium? Explain
– Yes.
• Prices are stable.
• Employment is returning to it’s pre-recession point (meaning
business has work); 4%
– Goods are services are being sold (clearing the market)
and new goods and services are being produced.
Surplus
• 144 a situation in which the quantity supplied
is greater than the quantity demanded
shortage
• 144 situation in which quantity demanded is
greater than quantity supplied
Equilibrium price
• 145 the price where there is neither a surplus
or a shortage at the end of a trading period.
• “clears the market”
Section 3, Terms:
• Price ceiling
• 151 a maximum legal price that can be
charged for a product
• Done for a social goal to help lower and fixed
income people
– Rent control
Minimum wage
• 152 The lowest legal wage that can be paid to
most workers
• Price floor
• 152 The lowest legal price that can be paid for
a good or service
• Reminder: minimum wage is a price floor;
helps people by insuring income they can
make a basic living.
Target price
• 153 A price floor for farm products
• Government will help farmers two ways
– Target prices
– Loan supports
Nonrecourse loan
• 153 a loan that carries neither a penalty nor further
obligation to repay if not paid back
• A farmer could get at least the target price for
his/her crops
– Given to farmers by the CCC (Commodity Credit
Corporation) of the US Government in the 1930s.
– Involved the farmer
• Borrowing money at the target price
• Pledging his/her crops as security (collateral) in return
– Farmer sold crops and kept any profits, paying back loan
– Or farmer kept money from loan, paid government with crops
Deficiency payment
• 153 a check sent to producers that makes up
for the difference in the actual market price
and the target price
– If the target price is higher than the market price
Hwk Assessments, Class Work,
to Know
Assessment, CH 6, S1
• 1
• Consumers weigh the price against their need
• Consumers will purchase
– less at a high price
– More at a low price
CH 6, S1
• 3
• High prices
– Producers produce more
– Consumers buy less
• Low prices:
– Producers produce less
– Consumers buy more
CH 6, S1
•
•
•
•
•
4
Neutrality
Flexibility
Lack of administrative costs
familiarity
CH 6, S1
•
•
•
•
5
Unfair system of allocation
High cost of administering the system
Employees/producers will want to work less
Assessments: CH 6, S2
• 1
• Changes that affect demand and, therefore,
price.
– Income
– Taste
CH 6, S2
• 3
• Prices are adjusted through
– Competition between buyers and sellers
CH 6, S2
• 4
• They show how markets work by helping
– Analyze behavior
– Predicting outcomes
CH 6, S2
• 5
• The more elastic, the smaller the price change
• The less elastic, the larger the price change
Assessments: CH 6, S3
• 1
• To achieve equity and security
CH 6, S3
• 3
• Shortages result if
– Prices are set below equilibrium
• Surpluses result if
– Prices are set above equilibrium
LA and drought (7)
(use your paper if there’s room)
• In your opinion, is the price of water in Los Angeles
high or low? (water is a public utility)
• The price of water is low, that way all people can afford
water.
• Why do you think that is?
• What will raising water prices cause during the
drought? (think what you were taught about price
equilibrium)
• What users are targeted on the proposed chart?
Explain.
• What users are protected on the proposed chart?
Explain.
LA and drought (7)
(use your paper if there’s room)
• In your opinion, is the price of water in Los Angeles high or low?
(water is a public utility)
– The price of water is low, most people can afford water
• Why do you think that is?
– Prices are kept low so lower income people can afford access to the
utility (water is a daily necessity).
• What will raising water prices cause during the drought? (think
what you were taught about price equilibrium)
– People will use less water (they will be forced to use less)
• What users are targeted on the proposed chart? Explain.
– Big users (probably businesses), they use the most water.
• What users are protected on the proposed chart? Explain.
– Small users, They use little water, mostly for necessities (survival)
CH 6, S3
• 4
• Loan supports allow farmers to borrow against
crops.
• Deficiency payments supply farmers with
checks for the difference between the target
price and the actual price.
CH 6, S3
• 5
• The significant movement of prices, signals
the collective decisions
– Whether up or down
Image, p. 138
• Questions
• Tokyo, Japan
• Answer should reflect knowledge of price
allocation:
– Access/resources/supply
– Market/demand
– Production
– Currency values
Image, p. 143
• Question
• $15
• + so how is the equilibrium point identified on
the
• Schedule?
– Surplus/shortage = 0
• Curve?
– Supply and demand curves intersect
Images, p. 145
• Question
• No one is sure what the equilibrium price for a
new product will be
– They estimate on the first day,
– Then adjust the price
Images, p. 146
•
•
•
•
Question
It shows a smaller range of price fluctuations
The curve tends to be more horizontal
+ in the left example, why might demand be
inelastic?
– There are no substitutes
– The purchase cannot be delayed
• + in the right example, why might demand be elastic?
– There are substitutes
– The purchase can be delayed
Other price motivations….. Handout.
• Why is his product so expensive? (5)
• How does he keep his costs down?
• What does he do when nobody buys his lemonade product?
• Who has the role of the government in this cartoon? Why do
you say that?
Other price motivations…..
• Why is his product so expensive? (5)
–
–
–
–
–
Pay stockholders their dividends
Pay executives their exorbitant salaries and benefits
Pay the workers their wages and benefits
Overhead
Production costs
• How does he keep his costs down?
– Using the cheapest methods
• What does he do when nobody buys his lemonade product?
– Demands a subsidy from the government
• Who has the role of the government in this cartoon?
– His mother
– He asks her for a subsidy
Images, p. 147
• Question
• Bad news
– War
– Disaster
– Possible recession
• Should the price of gold be high, presently? Explain.
– Current price of gold, 11/5:
– $1395/oz.
• US and global recession
Image, p. 153
• Question
• Problems regarding
– Fairness
– High administrative costs
– Diminished incentives to work and produce
– Large surpluses
Image, p. 154
• Question
• Loan program:
– Farmer received $40,000 as a loan at the
beginning of the season
• Deficiency payment program:
– Farmer received $40,000 from selling crops and a
payment to make up the difference.
Brief Response
• Would you describe the present US economy
as being at a reasonable market equilibrium
point? Explain. (2)