Setting an Economy’s Price System To understand how a nation’s economy functions it is important to understand the nation’s price system The forces that determine price are called the forces of supply and demand The place where these two forces meet is called the marketplace
Demand Demand is how much of something people want. e.g. Swimming suits have a different price and quantity demanded in summer vs. winter
Demand continued To measure demand, we can use a very simple numbering system. e.g. If 8 people want baseball cards, then we can say that the demand for baseball cards is 8. If 6 people want apples. Then we can say that the demand for apples is 6.
Law of Demand Law of Demand says that as the price of an item decreases, the quantity demanded will increase; and, as the price of an item increases, the quantity demanded will decrease.
Determination of Demand When lots of people want something, demand goes up. When a few people want something, demand goes down.
Supply Supply is how much of something is available. e.g. When the weather is good, farmers have more of a product to sell. When the weather is bad and products are ruined, farmers have less of a product they can sell.
Determination of Supply When there is a lot of something, supply is high. When there is only a little bit of something, supply is low.
Law of Supply and Demand The price of an item will go down if the supply increases or if the demand for the item decreases. The price of an item will go up if the supply decreases or if the demand for the item increases. In general, the price of an item is usually pushed toward the level at which the quantity supplied will equal the quantity demanded.
Determinants of Supply & Demand What could cause a huge increase or decrease in supply and demand across the board ( and a change in price is not a factor !) Resource prices ( raw materials) Technology (produce more products faster & more efficiently Taxes Subsidies ( Gov’t grants) Related Goods ( e.g corn, wheat) Expectations Number of Sellers in the Market
CONSIDER!!! Here is the tricky part. The price of something will depend on the supply and demand. Imagine there is a new video game that everyone is talking about. Everyone wants to get it, but the store is running out. Demand is high, but supply is low. Well you will start to worry you won’t get one at all. You start feeling almost like you would do anything to get it, right? Even pay more? People are willing to pay more for things they want that are hard to get. In this case, the store is going to charge more (or raise the price) because so many people want something there isn’t a lot of. WHO WINS IN THIS SCENERIO THE PRODUCER (makes the product) OR CONSUMER (the person who buys the product)?
CONSIDER!! The same is true in reverse, if demand is low (nobody wants it), but supply is high (there are a lot to sell) the store is going to lower a price and hope people buy it because it’s a bargain! WHO WINS IN THIS SCENERIO, THE CONSUMER OR PRODUCER?
Time to see what you are made of! Get out a piece of paper, a writing utensil, and get ready to answer some questions. Keep your answers to yourself 1.) Mr. Newman has a big bag of M&M’s. He is selling 1 M&M at a time to scholars. Everyone wants an M&M but there are more people than M&Ms. The supply is _________________. The demand is _______________. Therefore the price can be: Low High
2.) Ms. Marotta has a huge bag of dental floss. She is selling each container of floss to scholars at AFBES. She has over 500 containers, more than all of the scholars and teachers combined. It seems however that nobody wants to buy their floss from Ms. Marotta. The supply is __________________. The demand is ________________. Therefore the price can be: Low High
Now get with a partner and share your answers. Tell them why you chose the answer you did and justify why you think you are right. We will then come back together once everyone is finished (or almost finished) and your groups will share their answers and justification to the class
Exit Slip On a separate sheet of paper to turn in, answer the following question. Pick a product in society today. Tell my if the supply is high or low, the demand is high or low, and whether you would price it high or low for people to buy. Justify your answer to why you would price it the way you did!