Ch.6 PricesCh.6 PricesSection 1 (part 1), Section 1 (part 1),

Combining Supply and Combining Supply and DemandDemand

Cesar GarridoCesar Garrido

Period 2Period 2

Ms.MitatMs.Mitat

http://www.cartoonstock.com/directory/s/supply_and_demand.asp

Balancing the MarketBalancing the Market

Equilibrium is the point of balance between price and quantity.Equilibrium is the point of balance between price and quantity.

* * To find the equilibrium price and equilibrium quantity, just To find the equilibrium price and equilibrium quantity, just look at the price at which the quantity supplied equals the look at the price at which the quantity supplied equals the quantity demanded.quantity demanded.

We can also illustrate equilibrium with a supply and demand graph.We can also illustrate equilibrium with a supply and demand graph.

Market Equilibrium

http://www.cartoonstock.com/directory/s/see-saw.asp

Disequilibrium Disequilibrium

Disequilibrium happens if the market price or quantity supplied is Disequilibrium happens if the market price or quantity supplied is anywhere but at the equilibrium. This also happens if the anywhere but at the equilibrium. This also happens if the quantity supplied is not equal to the quantity demanded. quantity supplied is not equal to the quantity demanded.

- Excess Demand - Excess Demand

Excess demand occurs when quantity demanded is more than the Excess demand occurs when quantity demanded is more than the quantity supplied.quantity supplied.

http://www.fma.ie/mediabytes_july08-1.htm

Excess SupplyExcess Supply

Excess supply occurs when quantity supplied is more than quantity Excess supply occurs when quantity supplied is more than quantity

demandeddemanded..Whenever the market is at disequilibrium and prices are flexible, Whenever the market is at disequilibrium and prices are flexible,

market forces will push the market towards equilibrium. market forces will push the market towards equilibrium.

http://www.ft.com/cms/s/0/29a40a90-5d6f-11dd-8129-000077b07658.html#axzz1HHPWD9Wf

Excess Supply

Yeniffer Sanchez

Ch.6

Section 1, Part 2.

-“Price Ceilings”

- “The Cost of Price Ceilings”

- “Ending Rent Control”

-“Price Floors”

-Resources: The textbook

Graphics: http://garyjmorecraft.wordpress.com/

http://www.wachecon.com/mircoeconomics.htm

“Price Ceilings”Top price that the government implant for

the sellers to charge a good or service.

-They decides what’s the maximum price.

-Government limits the seller’s income.

- Price ceiling increases the quantity supplied.

“Price Ceilings”

Government places price ceiling on some goods that are considered “essential" and might become too expensive for some consumers.

Goods and services. Too Expensive.

Price Ceiling.Graphic: http://iamatvjunkie.typepad.com/i_am_a_tv_junkie_a_blog_f/2008/08/guess-who-cant-go-to-the-emmys-because-they-dont-have-the-cash.html

“The Cost of Price Ceiling”

Long waiting lists.Discrimination by Landlords:

Wealthy people rented

apartments at prices much less

than maker value.

They allocate the

Scarce supply of

Apartments among

The many people

Who want them.

Graphics: http://fairhealthconsumer.org/reimbursementseries/101costsharing.aspx

http://www.leahrealestateli.com/New_York/Long_Island/Nassau_County_Rental_Apartment_Search/Nassau_County_Apartments_for_Rent.html

“The cost of price ceilings”

Since the rents controls landlord’s profit, they try to increase their income by cutting cost.

Why?

Because of thewaiting list to get new apartments.

*The cost of price ceilings for renters.

Landlords looseinterest in working

hard to attractrenters.

Renters wouldwait months tohave routine

problems fixed.

Graphics ; http://southwindapartments.info/

“Ending Rent Control”

Benefits:

-Increases the number of apartments on the market by 10 000.

-Exceed the costs suggesting that there are better ways to help poor households find affordable housing.

Graphics: http://www.ffog.net/polemic-of-rent-controls-201110273.html

“Price Floor”

Minimum Price, set by the government that must be paid for a good and services.

-The government wants

sellers to receive some

minimum reward for their

efforts.

Minimum Price

For Goods andServices.

The end.Graphics :http://elcomusa.wordpress.com

Chapter 6 Section 2

Focus: When a supply/demand curve shifts, so does the equilibrium. Market price and quantity then move toward the new equilibrium

How do price and quantity move toward

equilibrium? If there is excess

supply the prices will fall and the demand will begin to rise until the two factors equal

If there is limited supply the prices are high and the demand will begin to decrease until the two factors equal each other

2 factors that can cause disequilibrium: shift in entire demand curve or supply curve

Changes in Price Factors that include shifting supply curve:

advances in technology new government taxes and subsidies changes in the prices of the raw materials labor used to produce goods

Market equilibrium occurs at intersection of supply curve and demand curve.

So shift in supply curve creates new equilibrium and market forces will begin to approach that equilibrium of price and quantity sold.

Shift in Supply Advances

Understanding a Shift in Supply Advances in production have allowed for manufactures to offer more products at lower prices causing the prices to fall and the supply curve to shift.

Finding a New Equilibrium

Surplus: when quantity supplied exceeds quantity demanded at a specific price.

When supply increases, prices fall and quantity demanded increases to reach a new equilibrium.

Change moves along the demand curve, does not shift the entire thing. Price falls to a point where quantity supplied and quantity demanded are equal; and excess supply is not a problem.

When supply increases, and the entire supply curve shifts to the right.

Changing Equilibrium

Quantities demanded and supplied are higher, and the prices are lower.

Curve is continually shifting and equilibrium changes as market conditions change.

 

Frequent price changes, sales, and rebates are designed to keep the machines moving out of stores as fast as new machines come in.

Photo ReferencesSlide 1- money.howstuffworks.com Slide 2shutterstock.comSlide 3besttattoooyakuza.blogspot.commypersonalfinancejourney.comrictec.com.sgnyworkerscompensationalliance.orgSlide 4Sparknotes.com

Slide 5Cartoonstock.comSlide 6Cartoonstock.comSlide 8Vermontel.netSlide 9Superstock.comSlide 10johnkstuff.blogspot.com

Section to be continued…

Chapter 6 Section 3:

The Role of Prices

The Role of Prices

Prices help move land, labor, and capital into the hands of producers, and finished goods into the hands of buyers.

The process of buying things such as presents would be way more complicated without prices.

Without prices the supplier would have no consistent and accurate way to measure demand for a product.

Graphic: google.com Information: Economics textbook

Everyone (buyers and sellers) looks at prices to find out info on supply and demand of goods.

Rising prices in a market will cause existing firms to produce

more goods and will attract new firms to enter a market.

High prices indicate producers that a specific good is in demand; therefore they should use their resources to produce more.

Graphics: google.comInformation: Economics textbook

Low price means that a good is being overproduced.

For consumers, a low price indicates that they should buy more goods. It also indicates that the good has a low opportunity cost and offers a good buying opportunity.

High price is a red light to stop and think carefully before buying.

Prices are flexible.

Prices can be increased to solve excess demand, or decreased ton eliminate excess supply.

Graphics: google.com

Information: Economics textbook

- Supply shock is a sudden shortage of a good.

- Rationing is dividing up goods and services using criteria other than price.

- Free market pricing distributes goods through millions of decisions made daily by consumers and suppliers.

- A benefit of a market-based economy is diversity of goods and services consumers are able to buy.

Graphics: google.comInformation: Economics textbook

A Wide Choice of Goods

Market-Based: Price gives suppliers a way to allow consumers to choose among similar products. Also allows producers to target a audience. Example: If someone saw a sweater for $20.00,

another sweater that was the same look just different material for $40.00. A person might go for the cheaper sweater to save money.

Source: Textbook. Picture source: Google.com

Command Economy: One organization decides what goods are produced and how much stores will charge for these goods. Example: They restrict production to a few varieties of each product.

Source: textbook Picture Source:

http://www.google.com/imgres?imgurl=http://www.wtec.org/loyola/displays/fh6_1.gif&imgrefurl=http://nykcsports.com/bjJB7dySye/&usg=__En6iTk1RE0woKgykCeMWWgFCMuM=&h=301&w=472&sz=5&hl=en&start=28&zoom=1&tbnid=S7CMk9_Y45P6aM:&tbnh=100&tbnw=157&ei=pending&prev=/images%3Fq%3Dcommand%2Beconomy%2Bdiagram%26um%3D1%26hl%3Den%26biw%3D1420%26bih%3D715%26tbs%3Disch:10%2C536&um=1&itbs=1&biw=1420&bih=715&iact=rc&dur=125&oei=iIyITZ2XI47ogQfBoqjXDQ&page=2&ndsp=32&ved=1t:429,r:5,s:28&tx=111&ty=41

Rationing and Shortage

During a shortage the government decides the price.

During WWII, choices in products were limited so the government began to control the distribution of goods.

Source: Textbook Picture Source: http://www.google.com/imgres?imgurl=http://blog.bioethics.net/rationing.jpg&imgrefurl=http://blog.bioethics.net/

2009/09/&usg=__FiohNzxRaIT8dQHTdO_xz5R1-7s=&h=450&w=357&sz=41&hl=en&start=0&zoom=1&tbnid=z58SzsRTS4tTiM:&tbnh=140&tbnw=111&ei=Ko2ITbPOFeqE0QGh2K3rDQ&prev=/images%3Fq%3Drationing%2Band%2Bshortage%26um%3D1%26hl%3Den%26biw%3D1420%26bih%3D715%26tbs%3Disch:1&um=1&itbs=1&iact=hc&vpx=122&vpy=64&dur=47&hovh=252&hovw=200&tx=140&ty=149&oei=E42ITefjLsf3gAePmaS1DQ&page=1&ndsp=30&ved=1t:429,r:0,s:0

The Black Market

Black Market: When people conduct business without regard for government controls on price or quantity.

Black Markets that include trade is illegal and strongly discouraged.

Source: Textbook Picture source: http://www.google.com/imgres?imgurl=http://www.cartoonstock.com/newscartoons/cartoonists/mba/lowres/mban2655l.jpg&imgrefurl=http://

www.cartoonstock.com/directory/b/black_market.asp&usg=__m5Tw0_3mLBJUo6T_-tc5e_-UyQU=&h=400&w=349&sz=32&hl=en&start=0&zoom=1&tbnid=nBqIOmXzz7O_YM:&tbnh=136&tbnw=119&ei=pending&prev=/images%3Fq%3Dwhat%2Bis%2Ba%2Bblack%2Bmarket%26um%3D1%26hl%3Den%26biw%3D1420%26bih%3D715%26tbs%3Disch:1&um=1&itbs=1&iact=rc&dur=281&oei=OJGITcvEH4eDtgeP8PCJDg&page=1&ndsp=30&ved=1t:429,r:19,s:0&tx=59&ty=88

Efficient Resource Allocation

Efficient Resource Allocation: Economic resources – land, labor, and capital – will be used for their most valuable purpose.

Changes take place without any central control. The people decide.

Source: textbook

Prices and the Profit Incentive

Depending on a situation it makes producers choose prices. Example: If a heat wave were to be on its way.

There would be a high demand for Air Conditioners and fans. So producers would raise prices to reach the incentive.

Source: textbook

Picture source: http://www.google.com/imgres?imgurl=http://s4.hubimg.com/u/62067_f520.jpg&imgrefurl=http://hubpages.com/hub/Anti-price_Fixing_Decision_Overturned_by_US_Supreme_Court&usg=__Cu7eJVSsKPgfTx6joHjnTQZjamw=&h=600&w=520&sz=28&hl=en&start=0&zoom=1&tbnid=aXFqtu-r0mM_DM:&tbnh=128&tbnw=111&ei=19yJTZvwJ8K1tgfHx4joDQ&prev=/images%3Fq%3Dprice%2Bdecision%26hl%3Den%26biw%3D1148%26bih%3D679%26gbv%3D2%26tbs%3Disch:1&itbs=1&iact=rc&dur=172&oei=19yJTZvwJ8K1tgfHx4joDQ&page=1&ndsp=27&ved=1t:429,r:0,s:0&tx=51&ty=88

Market Problems

1- Imperfection competition, affect prices higher prices can affect consumer decisions.

2- Spillover costs (externalities) cost of production, (air and water pollution)

3- Imperfect information- prevent a market from operating smoothly.

Source: Textbook Picture source: http://www.google.com/imgres?imgurl=http://www.primary-intel.com/wp-content/uploads/highlight_market-

problems.jpg&imgrefurl=http://www.primary-intel.com/7-steps-to-identifying-validating-market-problems/&usg=__KhDWwLGlsaIelytKcrLbLujukV8=&h=200&w=325&sz=19&hl=en&start=0&zoom=1&tbnid=EyuygM5j5W6LpM:&tbnh=100&tbnw=163&ei=FN2JTcyKI4O4tgeawJCCDg&prev=/images%3Fq%3Dmarket%2Bproblems%26hl%3Den%26biw%3D1148%26bih%3D679%26gbv%3D2%26tbs%3Disch:1&itbs=1&iact=rc&dur=187&oei=FN2JTcyKI4O4tgeawJCCDg&page=1&ndsp=18&ved=1t:429,r:0,s:0&tx=88&ty=83