1. PRICE SYSTEM

2. The Price System
Information
Incentives
Choice
Efficiency
Flexibility

3. Information

4. Incentives

5. Choice

6. Efficiency
Prices tell producers what products people want or do not want.
Prices quickly deliver information to both producers and consumers.

7. Flexibility
Prices can be quickly adjusted based on issues with either supply or demand.

8. Market Failures
The price system fails to account for some costs and therefore cannot distribute them appropriately.

9. Externalities
The production of goods sometimes results in side effects that can be either good or bad for people not directly connected with either the production or consumption of the good.
Negative Externalities
Positive Externalities

10. Negative Externalities

11. Positive Externalities

12. Public Goods

13. Instability
Because of the flexibility of the system it may become unstable at times such as when there are natural disasters or worker strikes prices may swing quickly between extremes.

14. Public Goods No pay, no spray: Firefighters let home burn
Tennessee house in ashes after homeowner 'forgot' to pay $75 fee

15. Market equilibrium

16. Price above equilibrium
If the price exceeds the equilibrium price, a surplus occurs:

17. Price below equilibrium
If the price is below the equilibrium a shortage occurs:

18. Demand rises

19. Demand falls

20. Supply rises

21. Supply falls

22. Price ceiling Price ceiling - legally mandated maximum price
Purpose: keep price below the market equilibrium price
Examples:
rent controls
price controls during wartime
gas price rationing in 1970s

23. Price ceiling (continued)

24. Price floor Price floor - legally mandated minimum price
Designed to maintain a price above the equilibrium level
Examples:
agricultural price supports
minimum wage laws

25. Price floor (continued)

26. Farm Subsidies
Subsidy Recipients 1 to 20 of 284 in zip code Recipients in this zip code received $8,045,913 from

27. Rationing
If supply falls too low for an essential product Government may ration that product.
WWII
Sugar/Tires
Black Markets
Market where goods are sold illegally or at higher than legal prices.

28. OPEC Increases Oil Production

29. Market for SUVs

30. Market for Economy Cars

31. Housing Market 1. Easy Credit 2. 2008 3. 2010

32. Market for Lumber Demonstrate why the price of lumber might rise in the spring

33. Market for Alcohol

34. Market for Alcohol

35. Market Size Increases

36. New Technology Improves Production

37. Government Subsidizes Production

38. Market for Propane Winter 2014