1. The Price System at Work Pgs. 142 – 148
Chapter 6.2
The Price System at Work
Pgs. 142 – 148

2. THE Price adjustment Process
An Economic Model
Just like supply & demand we can make models
Market Equilibrium
Price is stable
The quantity supplied & demanded is the same
Price QD QS
Surplus/
Shortage
$30 13
$25 1 11 10
$20 3 9 6
$15
$10 -7 $5 15
-15

3. Cont. Surplus Shortage Too many are made Too few are made
Supply is greater than demand
Shortage
Too few are made
Demand is greater than supply

4. Cont. Equilibrium Price
The price where there is no surplus or shortage

5. Explaining & Predicting Prices
Changes in Supply
Supply goes up – prices go down
Supply goes down…
Elasticity
This determines how much of a change in price S1

6. Cont. Changes in Demand Demand increases – price increases
Demand decreases… D1

7. Cont.
And when demand increases… S1 D D1

8. Practice Time…
Price QD QS

9. The Competitive Price Theory
The Price of every item will be roughly the same at every store
In a limited region
The size of the region changes based on the item
More expensive item, bigger region