PRICES AND DECISIONS MAKING CHAPTER 6

Warm up Questions: Monday March 20, 2017 List three items that you think are fairly priced and three items that you think are unfairly priced.

Define the following key terms Price (P. 137) Rationing (P. 139) Ration coupon (P.139) Rebate (P. 140)

Introduction A price is the value of a product in money Price determined by supply and demand Signal make economic decisions Prices give information and provide goals to buyers and sellers High prices are signals for producers to make more and buyers to buy less

Advantages of Prices Prices work to allocate or distribute goods and services Market, sellers compete for buyers, prices are neutral, favor neither the producer nor consumer Prices are flexible and adjust to unpredictable events like weather, natural disasters or war Flexibility allows market economy to respond to change Free market economy, prices have no cost of administration, unlike government-run market system. Prices are easy to understand

Why does the neutrality of price stimulate competition? Reflection Question #1 Why does the neutrality of price stimulate competition?

Allocations Without Prices Alternate to price system=rationing Rationing, people receive ration coupon (ticket obtain amount of product) People think it's unfair: shares too small High cost of administration, need to be printed and workers hired to give out coupons and handle complaints Decreases people’s desire to work and produce How hard a person works no relation to number of coupons received

Reflection Question #2 Imagine that no matter how much you studied, you already knew you would get a “C” for Economics. How would this affect your incentive to study?

Prices as a System Prices help buyers and sellers allocate or distribute resources to meet people’s needs 1970’s, higher oil affected producer and consumer decisions. Prices for heating oil and gas so high, consumers had less money for other things. Market for full-size cars felt affects, big cars use more gas. Automakers offered rebates (price reductions for big cars). People bought fewer cars. Auto factories closed and workers lost jobs Automakers produced smaller cars. This process was necessary for market economy

Reflection Question #3 Why do you think rebates were not enough to reenergize the big-car market during the 1970’s energy crisis?

Closure Question How does a market economy respond to changes that affect the entire world?

Warm up Questions: Tuesday March 21, 2017 List three reasons why Amazon is a successful company.

Closure Question What did the video teach you about how Amazon became a successful company?

Warm up Questions: Wednesday March 22, 2017 Have you ever had a surplus of an item (for example rubber bands)? Have you ever had a shortage of notebook paper? What is a surplus and shortage in economic terms?

Define the following key terms Economic model( P. 143) Market equilibrium (P. 143) Surplus (P.144) Shortage (P. 144) Equilibrium price(P. 144)

What is the price adjustment process? Economic model- Basic parts of economic process Use tables, graphs, or algebraic equations to show things simply Economic model combines supply and demand curve Model shows actions of buyers and sellers working together- market equilibrium (prices don’t change much)

MARKET EQUILIBRIUM

Suppliers produce 11 CDs and price them $25 each That price sell 1 CD leaving an extra amount (surplus) of 10 CDs that don’t get sold Surplus can cause price to decrease (little is surplus small and a lot if large) Suppliers lower price and charge $10 a CD When price becomes lower, CD’s sell fast, producing a shortage (not enought CDs for people who want to buy them)

Now, CDs selling well, producer wish charged higher price for product Next trading period, prices and supply increase Suppliers sell CD for $15 = equilibrium price (price leaves neither shortage nor surplus and “clears the market”

Reflection Question #1 Imagine that you want to go to a concert but you find it sold out at the ticket outlets. What effect will this shortage of tickets have on the price of the remaining tickets?

Explaining and Predicting Prices A change in supply, a change in demand, or both can cause a change in price Farming soybeans: Bad weather=shortage of soybeans, Demand soybeans stays same whether supply if great or small, price rises to $20 per bushel. Bumper crop= farmer gets $5 per bushel

Elasticity of demand affects prices When change in supply happens at same time as an inelastic demand, as with soybeans, prices change greatly Same change of supply happens at same time, as a very elastic demand, the change is smaller Change in demand can also affect price of a good or service. When economic conditions or political unrest threaten, people increase demand for gold and drive up the price

Reflection Question #2 U.S soybean farmers had a record harvest in 1998. What effect did the increase in the supply of soybeans have on their price?

The Competitive Theory of Price This is a set of ideals which markets come close. Prices of milk, flour and bread will be priced similar. Prices vary, buyers not well informed Price of gas higher at stations near highway because travelers don’t know where to get cheap gas Markets need to be a little competitive to distribute resources well. No agency should set price, market finds own equilibrium Questions of WHO, WHAT and FOR WHOM are answered by buyers and sellers

Reflection Question #3 Why do experts say that a market economy is one that “runs itself”?

What have you learned today about price systems at work? Closure Question What have you learned today about price systems at work?