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CHAPTER 6: PRICES

CHAPTER 6: PRICES. SECTION 1: COMBINING SUPPLY AND DEMAND. Equilibrium—the point at which quantity demanded and quantity supplied are equal. A Balanced Market. S. $. D. QTY. Qty demanded is more than quantity supplied When the actual price in a market is below the equilibrium.

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CHAPTER 6: PRICES

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  1. CHAPTER 6: PRICES SECTION 1: COMBINING SUPPLY AND DEMAND

  2. Equilibrium—the point at which quantity demanded and quantity supplied are equal. A Balanced Market S $ D QTY

  3. 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 D QTY EXCESS DEMAND

  4. Occurs when quantity supplied exceeds quantity demanded. Any price above the equilibrium point. EXCESS S $ D QTY EXCESS SUPPLY

  5. 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

  6. 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.

  7. SECTION I ASSESSMENT • Section 1: 1-4, 6-7 • Worksheet • End of Chapter: 1-8

  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.

  9. 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.

  10. CHAPTER 6: PRICES SECTION 2: CHANGES IN EQUILIBRIUM

  11. Producers of the cassette tape after the introduction of the cd player. What caused the shift S¹ $ D¹ QTY Market Scenario #1

  12. The government cuts back the taxes on diesel fuel—what happens for Van Wyk Trucking? What caused the shift S¹ $ D¹ QTY Market Scenario #2

  13. S¹ $ D¹ QTY Market Scenario #3 • It has been reported that coconut oil is found to be the elixir needed for youthful health and appearance. • What caused the shift?

  14. S¹ $ D¹ QTY Market Scenario #4 The GI Joes with the kung fu grip is “the” toy to have as Christmas approaches. What causes the shift?

  15. CHAPTER 6: PRICES SECTION 3: THE ROLE OF PRICES

  16. 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.

  17. Advantages of Prices • Price as an incentive • Prices serve as a sign to buyers and sellers. • How to adjust. • Direction to adjust

  18. 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.

  19. 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.

  20. Advantages of Prices • Price System is free • No administration costs • Decisions made by dollar vote vs. a controlled economic system.

  21. 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.

  22. 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

  23. Ty Beanie Babies • http://www.aboutbeanies.com/marketing.html

  24. SECTION II & III ASSESSMENT • Section 2: 1-4 • Section 3: 1-4,6 • End of Chapter questions—9-13 Graphically show 14 & 15, 17

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