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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

CHAPTER 6: PRICES

SECTION 1: COMBINING SUPPLY AND DEMAND

excess demand
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
excess supply
Occurs when quantity supplied exceeds quantity demanded.

Any price above the equilibrium point.

EXCESS

S

$

D

QTY

EXCESS SUPPLY
price ceiling

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
price floor

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.
section i assessment
SECTION I ASSESSMENT
  • Section 1: 1-4, 6-7
  • Worksheet
  • End of Chapter: 1-8
report
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.
report1
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.
chapter 6 prices1

CHAPTER 6: PRICES

SECTION 2: CHANGES IN EQUILIBRIUM

slide12
The government cuts back the taxes on diesel fuel—what happens for Van Wyk Trucking?

What caused the shift

$

QTY

Market Scenario #2

market scenario 3

$

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?
market scenario 4

$

QTY

Market Scenario #4

The GI Joes with the kung fu grip is “the” toy to have as Christmas approaches.

What causes the shift?

chapter 6 prices2

CHAPTER 6: PRICES

SECTION 3: THE ROLE OF PRICES

the role of prices
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.
advantages of prices
Advantages of Prices
  • Price as an incentive
    • Prices serve as a sign to buyers and sellers.
    • How to adjust.
    • Direction to adjust
advantages of prices1
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.
advantages of prices2
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.
advantages of prices3
Advantages of Prices
  • Price System is free
    • No administration costs
    • Decisions made by dollar vote vs. a controlled economic system.
variety of choices
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.
market problems
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
ty beanie babies
Ty Beanie Babies
  • http://www.aboutbeanies.com/marketing.html
section ii iii assessment
SECTION II & III ASSESSMENT
  • Section 2: 1-4
  • Section 3: 1-4,6
  • End of Chapter questions—9-13 Graphically show 14 & 15, 17