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Price System in Economics

This chapter explores how market forces of supply and demand influence pricing decisions, equilibrium points, and government interventions in setting prices. Learn about price ceilings, floors, advantages of capitalism, and the role of prices in offering choices in the economy.

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Price System in Economics

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  1. The Price System Chapter 21.4Questions, Activities and Graphing Exercises

  2. Setting Prices • Producers want high prices. • Consumers want low prices. • Prices must be high enough to make a profit and low enough to attract consumers. • Shortages cause prices to increase. D>S • Surpluses cause prices to decrease. D<S • Where producers and consumers wants intersect is how prices & quantity are determined. This is called the equilibrium point. This point determines the EP & EQ.

  3. Price Schedule Quantity (liters) demanded/week 120 95 75 60 50 Price per liter $1.20 $1.30 $1.50 $1.75 $2.15 Price per literQuantity (liters) supplied/week $1.20 50 $1.30 60 $1.50 75 $1.75 95 $2.15 120 EP 0 EQ

  4. Setting Prices • Price ceilings are limits on how much producers can charge for a good or service. These are VERY rare in our economy. Ex. Is rent controls in NYC • Price floors are limits on how little businesses can charge for a good or service. Ex are farm prices kept low by subsidies. Another example is minimum wage. • Consumers & producers largely determine prices in US economy. However, there is gov’t rules so we’re a mixed market economy.

  5. Setting Prices • What are the advantages of our price system in Capitalism? • Prices are neutral…What does a “buyer’s market” mean? • Prices are flexible…Give an example of how prices may flex. • Prices offer choice…How many choices do you have for shoes? • Prices are familiar…Why is inflation bad for consumers?

  6. Practice • Discuss the graph at the bottom of p. 74. • Graph the schedules on p. 75 & label all parts correctly. • Label all 10 points! • Discuss & peer score • Demonstrate each graph and check information. • Complete the scenarios with your elbow partner. Discuss as a group.

  7. Assignment • Read 23 & selected pages to complete questions for p. 76. • Due Tomorrow!

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