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How do prices act as signals for consumers and producers?

How do prices act as signals for consumers and producers?. Go Ahead…Take A Guess!!. What do prices do?. Prices convey information to both. What do high and low prices tell each? Prices help answer the (3) economic questions. IMPORTANT INFORMATION ABOUT PRICES.

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How do prices act as signals for consumers and producers?

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  1. How do prices act as signals for consumers and producers? Go Ahead…Take A Guess!!

  2. What do prices do? • Prices convey information to both. • What do high and low prices tell each? • Prices help answer the (3) economic questions

  3. IMPORTANT INFORMATION ABOUT PRICES • 1. They don’t favor either party – they result because of competition • Why can’t Chicken Run charge $500 for chicken fingers?

  4. I don’t have anything to write up here • 2. They are flexible – allows for change • Disasters, weather, war effect price and people adjust • This is most often seen with products with which type of demand?

  5. Don’t have anything for here either • 3. They provide choice – if they become too high, people can go elsewhere

  6. Thought I had something for here…but I don’t • 4. Markets find their prices without outside help • Government does get involved as we will see

  7. Here’s number 5 • 5. Prices are efficient – people can make decisions about purchases and behavior quickly • Example: Hong Kong tolls

  8. Review • What system could be used to allocate resources without prices? • What are the problems with this system?

  9. So how do we get to a price? • Draw a supply curve and demand curve on the same graph. • Label everything. • Find a point on the graph that represents the price and quantity that should be charged. • Label that point “E”.

  10. What is point E called?

  11. The big questions: • What happens if price falls above this point? • What happens if price falls below this point? • How do shifts in Demand and Supply effect quantity and price?

  12. This price leaves me too many - SURPLUS

  13. This price leaves me too few - SHORTAGE

  14. This one is just right!

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