Prices and EquilibriumMr. Bammel

Prices

• The monetary value of a product as established by supply and demand.

• Turn to a partner in the room and have a discussion. Answer the questions: • Are prices fair? • Should the government help dictate prices? • In what situations do you think government should dictate

prices?

Advantages Prices

• Prices link the producers and consumers; and allow allocation of goods and services to be smooth and efficient.

• Advantages of prices• There is neither a favor in producers, nor consumers• Prices are flexible and allow economy to accommodate change• No Cost in administration• Familiar and easily understood

Without Price

• What would be done if we did not use price as a means to distribute goods and services? What options exist?

Rationing

• A system under which an agency such as the government decides everyone’s “fair” share.

• People receive Ration Coupons, which is a ticket or a receipt that entitles the holder to obtain a certain amount of a product.

• What are all the problems with rationing?

Prices as a System

• After reading the information on page 140 about prices as a system, explain in your own words how prices act as a system which tells the market where resources should be allocated.

Graphing Market Demand and Supply Curves

• Take the large piece of paper and fold it in half three separate times to create 8 squares/sections for use of drawing graphs.

Square #1: Market Equilibrium

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Use the graph to draw in a point labeled “E” where one would find Market equilibrium.

• Explain off to the side what Market equilibrium is and what Price Equilibrium means.

Square #2: Surplus

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Find a price on the graph that would display a surplus of a product.

• What is a surplus?• What will tend to happen if a surplus does exist?

Square #3: Shortage

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Find a price on the graph that would display a shortage of a product.

• What is a shortage?• What will tend to happen if a shortage does exist?

Square #4: Changes in Supply

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Use a different color pen/pencil and draw a line representing an increase in Supply. Using the same color pen/pencil, write down what happens to the price and the quantity because of this increase in supply.

• Use a different color pen/pencil and draw a line representing an decrease in Supply. Using the same color pen/pencil, write down what happens to the price and the quantity because of this decrease in supply.

Square #5: Changes in Demand

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Use a different color pen/pencil and draw a line representing an increase in demand. Using the same color pen/pencil, write down what happens to the price and the quantity because of this increase in demand.

• Use a different color pen/pencil and draw a line representing an decrease in demand. Using the same color pen/pencil, write down what happens to the price and the quantity because of this decrease in demand.

Square #6: Price Ceilings

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Use the graph to display a Price Ceiling.• Explain what a price ceiling is and what is created by a

price ceiling.• Explain the example of Rent Controls and how it must

abide by price ceilings.

Square #7: Price Floors

• Draw a graph which has price labeled on the Y-axis and Quantity labeled on the X-axis. Then draw an example Demand Curve and an example Supply Curve in the graph.

• Use the Graph to display Price Floors.• Explain what a price floor is and what is created by a

price floor.• Explain the example of minimum wage and it must abide

by a price floor.