# Quantity - PowerPoint PPT Presentation

1 / 32

S. 3.00 2.00 1.00. Pr ice. Prices. SECTION 1: The Price System SECTION 2: Determining Prices SECTION 3: Managing Prices. D. 2000 4000 6000 8000 10000 12000 14000. Quantity. SECTION 1. The Price System.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

Quantity

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

#### Presentation Transcript

S

3.00

2.00

1.00

Pr

ice

Prices

• SECTION 1:The Price System

• SECTION 2:Determining Prices

• SECTION 3:Managing Prices

D

2000 4000 6000 8000 10000 12000 14000

Quantity

SECTION 1

The Price System

### Objectives:

• What is the role of the price system?

• What are the benefits of the price system?

• What are the limitations of the price system?

SECTION 1

The Price System

### What is the Price System?

• How Producers and Consumers communicate to determine prices.

SECTION 2

Determining Prices

### Objectives:

• What is market equilibrium?

• How does the price system handle product surpluses and shortages?

• How do shifts in demand and supply affect market equilibrium?

SECTION 2

Determining Prices

### Market equilibrium is reached when the Qs = Qd

Meaning the price when all goods produced are bought.

S

3.00

2.00

1.00

Pr

ice

Eq.

D

2000 4000 6000 8000 10000 12000 14000

Quantity

### What is a surplus?

• When there are more goods being made than being sold

• What does this mean?

• There are products just sitting on the shelf.

• What might you do?

Surplus

S

P1

P2

P3

P4

Pr

ice

Eq.

D

2000 4000 6000 8000 10000 12000 14000

Is there still a surplus?

What should be done to fix this?

What happened to Price, Qs, and Qd?

Quantity

SECTION 2

Determining Prices

### How the price system handles product surpluses

• lowering product prices

• decreasing quantity supplied

• increasing quantity demanded

S

P1

P2

P4

P3

Pr

ice

Eq.

Shortage

D

2000 4000 6000 8000 10000 12000 14000

What happened to Price, Qs, and Qd?

Quantity

SECTION 2

Determining Prices

### How the price system handles product shortages:

• increasing product prices

• increasing quantity supplied

• decreasing quantity demand

SECTION 2

Determining Prices

### How shifts in demand and supply affect market equilibrium:

• Causes equilibrium to shift

• What is a determinant of Demand?

• What is a Determinant of Supply?

Product: Potatoes

S

Surplus

Pr

ice

P1

Eq 1

Eq. 2

P2

D2

D1

Q1

Q2

Quantity

### If demand decreases what happens to:

• Qs?

• Equilibrium Price?

### If demand increases what happens to:

• Qs?

• Equilibrium Price?

### If supply increases what happens to:

• Qd?

• Equilibrium Price?

### If supply decreases what happens to:

• Qd?

• Equilibrium Price?

Fill in the demand/supply schedule for a cup of coffee. Use the data to create an equilibrium chart.

Choose a determinant of demand and draw a second demand curve that illustrates what would happen if a change in that determinant had an effect on demand. Determinant____________________________________

What happened to the equilibrium point?

Now choose a determinant of supply and draw a second supply curve that illustrates what would happen if a change in that determinant had an effect on supply. Determinant ______________________________________________

What happened to the equilibrium point?

Directions:

• In groups, you will draw an equilibrium graph showing:

• a. All Labels

• b. What happens to the graph because of the headlines.

• Be sure to include:

• Increase or Decrease in Supply, Demand, Qs, and Qd.

• What happens to Equilibrium

Tomorrow you will be presenting your graphs to the class explaining what is happening in the graph.

1. Product: Hot Dogs

a.Actual ingredients in hot dogs released to public. Trust us, you don’t want to know!!

b.Price of Hot Dog Buns Sky Rocket because Wheat Producers go on strike!!!!

2. Product: Hershey Chocolate

a.Halloween is Next Week!!!!

b.Hershey Bars: Part of a Healthy Diet!

a.Apple to Raise Price on All iPods.

b.Bose introduces headphones to Czech Republic for 1st time ever.

4.Product: Televisions

a.New Television Producer Hopes to Make Splash With New Slim LCD T.V.

b.Study Shows U.S. Citizens Making 25% Less Than 10 Years Ago.

5. Product: Bananas

a.To Keep Costs low, the Government Will Give Subsidy to Banana Farmers Next Year

b.Ice Cream over produced, Every Thursday for the next year is Free Ice Cream Day!!

SECTION 3

ManagingPrices

### Objectives:

• Why do governments sometimes set prices?

• What do governments try to accomplish through price floors, price ceilings, and rationing?

• What happens when governments manage prices?

SECTION 3

ManagingPrices

### Reasons governments set prices:

• to keep the market functioning smoothly

• to avoid instability caused by dramatic price swings

SECTION 3

ManagingPrices

### Tools the government uses to set prices:

• price floors

• price ceilings

• rationing

Price FloorCorn per pound

S

5.00

4.00

3.00

2.00

1.00

Pr

ice

Pf

Eq.

D

2000 4000 6000 8000 10000 12000 14000

Quantity

### Price Floors

• Set above Equilibrium

• Causes a Surplus

• Stops a products price from reaching Equilibrium, much like a floor stops us from touching the ground.

### Price Ceilings

• Set below Equilibrium

• Causes a Shortage

• Stops a products price from reaching Equilibrium, much like a ceiling stops us from reaching the sky.

Price CeilingGas Per Gallon

S

5.00

4.00

3.00

2.00

1.00

Pr

ice

Eq.

Pc

D

2000 4000 6000 8000 10000 12000 14000

Quantity

### Rationing

• The government determines how to distribute a good.

• Usually used during times of war to ensure the military receives necessary materials at a low price.-Little competition for the product.

Rationing

S2

S1

5.00

4.00

3.00

2.00

1.00

Pr

ice

Eq.1

D1

2000 4000 6000 8000 10000 12000 14000

Quantity

SECTION 3

ManagingPrices

### What happens when governments manage prices:

• creates imbalances between supply and demand

• prevents markets from reaching equilibrium

• can create black markets

CHAPTER 5

Wrap-Up

1.Describe the limitations of the price system.

2.Explain the role of the price system. Be sure to include how the price system encourages market equilibrium.

3.How can a shift in demand influence a market’s equilibrium point?

4.Why might a government establish a price floor on one good or service and a price ceiling on another?

5.Why might a government begin rationing items in the market?