1. The Last Word: Unit 2 test and Ch 6 Review – Monday FrontPage: NNIGN – welcome back redux. Worst Fast Food Names 1

2. Chapter 6, Section 2

3. Our economic system is not run by any single group or individual…  But how do producers and consumers know what to make or buy, and when?  How do scarce resources (with alternative uses) get allocated efficiently across a huge nation with hundreds of millions of people?

4.  Send signals to producers about:  What to produce  When to enter or leave a market  Send signals to consumers about:  What to buy  When to buy

5. Characteristics of the Price System  Neutrality  Do not favor either producer or consumer  Free interactions of both help determine equilibrium price  Market-driven  The “invisible hand”, not central planners (gov.) determine prices  Flexibility  Can change as market conditions change; faster than decision-making by individuals  Efficiency  Will adjust until maximum number of goods are sold

6. Prices motivate and inform both producers and consumers  Provide positive and negative incentives  For producers  Provide both motivation and information  Rising prices – get in market; make profit  Falling prices – get out; avoid losses, allocate resources elsewhere  While our system is often called a “profit” system, it should also be called a “loss” system  For consumers  Act as incentives; encourage purchases, or motivate to switch to a substitute

7. Signals?  For each of the following images, determine who is being sent a signal, and what the signal is.

8.  Signal to whom?  What is the message?

9.  Signal to whom?  What is the message? From businessinsider.com

10.  Signal to whom?  What is the message?

11.  Signal to whom?  What is the message?

12.  Signal to whom?  What is the message? “Non-store” = Internet

13.  Signal to whom?  What is the message?

14.  Scenarios

16. Homework: Unit 2 Test (Ch 4, 5 and 6) and CH 6 Review - Monday FrontPage: What signal do higher prices send to producers? Products that DEFINITELY needed to be gendered…

17. Scenarios…  You have been asked to wine and dine a new client who is coming to Pittsburgh for the first time. You need to choose a restaurant that will impress the client, and let him or her know that your business is successful and strong.  Which restaurant in Pittsburgh would you choose? How do you know this is a good choice?  How might you guess which wine to choose to impress the client?  You are moving to a new city to start your first “real” job, and are looking for a place to live.  How might the prices of various apartments and houses send you a “signal” about the quality of life there?  You want to buy a wedding ring that will impress your better half (and let him or her know they are not marrying a moneyless moocher), but you know nothing about diamonds or jewelry.  How might you be able to determine the various qualities of rings without knowing or researching anything specific about jewelry?

18. Scenario 4:  You have developed a new, high-tech product that will surely become the “next big thing” in personal technology. You need to determine the price level at which you will offer your product when you introduce it.  Would it be a good strategy to price your product artificially high when you first introduce it? Why or why not?  What might eventually happen to the price after the product has been around for 6 months or a year?

19. Pricing strategies  Skimming  goods are sold at higher prices so fewer sales are needed to break even.  This strategy is often used to target "early adopters" of a product or service. Early adopters generally have a relatively lower price- sensitivity - this can be attributed to: their need for the product outweighing their need to economize; a greater understanding of the product's value; or simply having a higher disposable income.  Usually used only for a limited period  Penetration pricing  setting the price low with the goals of attracting customers and gaining market share. The price will be raised later once this market share is gained  Predatory pricing  also known as aggressive pricing (also known as "undercutting"), intended to drive out competitors from a market. It is illegal in some countries.

20. **What does the cartoon above say about one of the signals that price sends?

21. What is probably the most expensive “necessity” in our society?  Should government put a “cap” on the cost of it?  Why would it do that?  Can you think of something that government puts a “minimum” price limit on?  Why does it do that?