Essential Question: What is the right price?

 Putting _____ and ________ together  If you are a seller, how do you know how much to charge for your product?  You need to find the point where quantity supplied meets quantity demanded  See the chart (figure 6.1) on p. 134

 If sellers supply more than people want to buy, you have a _____________  If sellers can’t keep up with _________, shortages occur

 Why is it so important for a market to be in equilibrium?  __________ who are willing to pay the equilibrium price will find plenty of goods in stores to purchase  ___________ selling at the equilibrium price won’t have trouble finding buyers for their products  ___________________________________!

 When supply and demand ________________  Leads to _________ or ___________

 If a company can’t keep up with the number of people who want to buy its product, what does that tell the company about the ____________________  If ________________________ at that price, what is that telling the company?  If buyers _______________________ at the price they are willing to pay, what is that telling them?

 Sometimes the government _____________________ above or below where the market would set it  Examples:  _________ control  Flood _____________  __________________  Crop subsidies for _____________

 Disequilibrium due to: 1. increased _______________  New ___________  Changes in _______________  Changes in consumer _________________  Or….  2. increased ________________  _______________________  Production problems  So what happens? New producers enter the market to meet the increased demand (and cash in!)  Quantity demanded ________________  __________________________  Higher prices ___________________________  Production problems _______________  New suppliers increase the _______________  The shortage is over and a ________________________ is reached

 In a _____________ system, prices ____________ for distributing goods and services throughout the economy  This means that _________ is based on who has the ability and willingness to buy the goods and services  Allocating resources based on prices is the most _______________________________  Serve as a language to ___________ between ______ and ________ (gives feedback on incentives and economic conditions)  The alternative would be to have the government decide (centrally planned economy) thorough rationing, etc.

 Provides a common language; buyers and sellers understand what a price of $.99/lb or $2.39/gallon means  Increasing prices ___________________  Decreasing prices ____________________  Book compares prices to a traffic light  Prices are flexible and help the market stay flexible  For example, can avoid supply shock  A price system is FREE! ________________ on running a program to decide who gets what

 Besides a price system…  __________________________

 1. The price system doesn’t always work…  What if there is ______________________?  Few firms selling the good or service  Much higher influence over price 2. What about _____________________________?  We learned about these in chapter 3. They are market failure because the costs and benefits aren’t properly assigned  3. Imperfect __________________________ buyers and sellers can’t make the best choices if they don’t know everything they need to know about a product. This is part of why we have consumer protection and disclosure laws.