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JOURNAL ACTIVITY: What happens as the price of a good decreases? What happens as the price of a good decreases? When would a shortage of a product occur?

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Presentation on theme: "JOURNAL ACTIVITY: What happens as the price of a good decreases? What happens as the price of a good decreases? When would a shortage of a product occur?"— Presentation transcript:

1 JOURNAL ACTIVITY: What happens as the price of a good decreases? What happens as the price of a good decreases? When would a shortage of a product occur? When would a shortage of a product occur? When would a surplus of a product occur? When would a surplus of a product occur?

2 Putting Supply & Demand Together= Pricing! 7:4 At what price will consumers be willing to buy and producers be willing to sell?

3 Essential Questions: I. Explain how Equilibrium price determined. 2. How do shifts in equilibrium price occur? 3. How do shortages and surpluses affect price? 4. Explain how price ceilings and floors restrict free exchange of prices?

4 Supply, Demand & Pricing: Supply, Demand & Pricing:

5 I. Equilibrium Price: When quantity supplied and quantity demanded are equal at the same price. When quantity supplied and quantity demanded are equal at the same price. Is the point where supply and demand curves intersect. Is the point where supply and demand curves intersect. Adjustment process of prices to reach equilibrium works to eliminate surpluses and shortages by trial and error. Adjustment process of prices to reach equilibrium works to eliminate surpluses and shortages by trial and error.

6 Essential Questions: I. Explain how Equilibrium price determined.

7 II. Shifts in Equilibrium Shifts in the demand or supply curves cause the equilibrium point to shift to the new intersection. Shifts in the demand or supply curves cause the equilibrium point to shift to the new intersection. The new equilibrium price will fall/rise and the QS & QD will increase/decrease! The new equilibrium price will fall/rise and the QS & QD will increase/decrease!

8 ILLUSTRATION

9 Essential Questions: 2. How do shifts in equilibrium price occur?

10 III. Prices Serve as Signals: III. Prices Serve as Signals: A. Surplus: When the quantity supplied exceeds the quantity demanded at the price offered. When the quantity supplied exceeds the quantity demanded at the price offered. Tells producers that they are charging too much for their product Tells producers that they are charging too much for their product

11 A lower price increases the quantity demanded and decreases quantity supplied and steers the market towards equilibrium. A lower price increases the quantity demanded and decreases quantity supplied and steers the market towards equilibrium. Points above market equilibrium are surplus. Points above market equilibrium are surplus.

12 B. Shortages: Exists when quantity demanded exceeds the quantity supplied at the price offered. Exists when quantity demanded exceeds the quantity supplied at the price offered. Tells producers they are charging to little. Tells producers they are charging to little.

13 Shortage A higher price will decrease the quantity demanded and steer the market towards equilibrium. A higher price will decrease the quantity demanded and steer the market towards equilibrium. Points below market equilibrium are shortage. Points below market equilibrium are shortage.

14 Essential Questions: 3. How do shortages and surpluses affect price?

15 IV. Setting Prices A. Two types: Price Ceilings Price Floors Price Floors Price Ceilings – government regulation that establishes a maximum price for a particular good. Ex. Rent controldrop monthly rate $500 Price Ceilings – government regulation that establishes a maximum price for a particular good. Ex. Rent controldrop monthly rate $500 Price Floor – government regulation that establishes a minimum price for a particular good. Ex. Minimum wageset lowest amount one can pay employees Price Floor – government regulation that establishes a minimum price for a particular good. Ex. Minimum wageset lowest amount one can pay employees

16 Price Floors and Price Ceilings Surplus & Shortage Worksheet

17 B. Consequences of Setting Prices Can prevent equilibrium. Can prevent equilibrium. 1. Price Ceilings may result in shortages b/c prices are below equilibrium, lead to : Rationing/Black Market! Ex. P if have low price ceiling on apts., less people will rent. Law of Supply QS < QD 2. Price Floors may result in surpluses b/c prices are above equilibrium! Ex. P if have high price floor on peaches, more people will produce them! Law of Demand QS > QD

18 Essential Questions: 4. Explain how price ceilings and floors restrict free exchange of prices?

19 Coursework: Read 7:4 Read 7:4 Answer questions p Answer questions p STUDY!!!!! STUDY!!!!!


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