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How the Market Works

How the Market Works. Entrepreneurship Chapter 5. Economic Systems. Answer three basic questions: Which goods and services will be produced? How will goods and services be produced? How will goods and services be distributed?. Market Economy. Market Economy

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How the Market Works

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  1. How the Market Works Entrepreneurship Chapter 5 Entrepreneurship

  2. Economic Systems • Answer three basic questions: • Which goods and services will be produced? • How will goods and services be produced? • How will goods and services be distributed? Entrepreneurship

  3. Market Economy • Market Economy • Basic economic decisions are based on the actions of buyers and sellers in the market • Used in the USA • Price • The amount of money given for when good and services are bought or sold. Entrepreneurship

  4. Prices • The Market and Prices • Market • Any place individuals buy and sell goods and services. • Home, stores, telephones, Internet, mail, etc. • Prices are driven by scarcity • Prices encourage and discourage Entrepreneurship

  5. Affecting Consumers Consumers provide demand. Demand Amount or quantity of goods and services that consumers are willing & able to buy at various prices. How do prices encourage and discourage? Market Economy Principles: The higher the price, the less consumers will buy of an item. The lower the price, the more consumers will buy. Prices Entrepreneurship

  6. Prices • Law of Demand • States that consumers will generally buy less of an item at a higher price than at a lower price. • View PAGE 74 -- Ed’s Picnic Tables • The higher the price; the lower the number of sales. Entrepreneurship

  7. Want to receive a price that recovers cost and provides a profit. Producers will generally produce less of an item at a lower price than they will at a higher price Not as much profit. Prices • Affecting Producers • Influenced to supply goods or services by the prices in the market. • Supply • Amount of goods and services that producers will provide at various prices. Entrepreneurship

  8. Prices • Law of Supply • States that the higher the price, the more producers will supply; the lower the price, the less they will supply. • Profit is higher at the higher price. • Can cause inflation. • View PAGE 75 – Ed’s Picnic Tables Entrepreneurship

  9. Surplus Over-supply Consumer demand is less than the amount supplied. Shortage Undersupply Consumer demand is more than the amount supplied Equilibrium Price Point (price) at which the amount supplied equals the amount demanded. Prices always move toward equilibrium. Determining Prices Entrepreneurship

  10. Example of a Surplus Keen’s Toy Store has a supply of 100 Friddles to sell priced at $3.97. After one week, only 15 Friddles were sold. (SURPLUS) Keen’s Toy Store lowers the price of Friddles to $2.49 and the remaining toys sold. Entrepreneurship

  11. Example of a Shortage Keen’s Toy Store has a supply of 100 Friddles to sell priced at $.97. The Friddles sold like hotcakes; and Keen’s Toy Store was shortly sold out of Friddles (SHORTAGE). Keen’s Toy Store ordered additional Friddles and raised the price to $2.49 to make more profit. Entrepreneurship

  12. What’s a Friddle you ask? Hello Everyone! Entrepreneurship

  13. Bye! Entrepreneurship

  14. Supply and Demand Entrepreneurship

  15. SUPPLY $ DEMAND QUANTITY Supply and Demand Equilibrium Price Entrepreneurship

  16. SUPPLY $ DEMAND QUANTITY Supply and Demand Demand Increases Equilibrium Price Entrepreneurship

  17. Supply and Demand Supply Increases Equilibrium Price SUPPLY $ DEMAND QUANTITY Entrepreneurship

  18. Changing Prices • Changes in Demand • Changes in consumer’s taste • Fad items: Leather Bomber Jackets; Combat Boots • Straight Leg Jeans; Jean-Jackets; Tie-Dyed; Leg-ins; Jelly Sandals; Furbie; Power-Rangers; • Changes in income • Pay raises and Pay cuts • Substitute Products • Beef vs Chicken; Coke vs Pepsi Entrepreneurship

  19. Changes in Price • Changes in Supply • Weather • All food products • Cost of production changes • More expense – raises prices • Technology • Efficient productivity – Produce more faster • Competition Entrepreneurship

  20. Changes in Price • Changes by Force Controlling Market • Business Control • Lack of Buyers or Sellers • A few firms control the market with price • Ferrari • Government Control • Utilities – Rent – Milk Entrepreneurship

  21. The Ever-Changing Market • Prices may change for more than one reason • Cause-and-Effect • Consumers and producers affect price and price affects consumers and producers Entrepreneurship

  22. Using the following news sources / web sites, identify five (5) current issues that may affect prices for our economy. www.usatoday.com www.foxnews.com www.cnn.com www.msn.com www.centredaily.com www.businessweek.com www.cnet.com www.washingtonpost.com Class Activity Entrepreneurship

  23. Supply and Demand Activity Lemonade Stand coolmath4kids.com Entrepreneurship

  24. Homework Assignments • Language of Business • Page 84 • Review • Page 84 • Group Project • Page 85 • Evaluate • Page 85 Entrepreneurship

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