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Chapter 6.1: Prices.

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1 Chapter 6.1: Prices

2 Objectives Explain how supply and demand create equilibrium in the marketplace. Describe what happens to prices when equilibrium is disturbed. Identify two ways that the government intervenes in markets to control prices. Analyze the impact of price ceilings and price floors on a free market.

3 That’s a good question Hack Daddy!
Bell Ringer We demand what we want and pay only what we feel it’s worth Suppliers produce only what they choose in hopes of making the most amount of profit. HOW DOES ALL THIS EVER MAKE SENSE IN THE MARKETPLACE!?!?! That’s a good question Hack Daddy!

4 SUPPLY AND DEMAND!

5 Introduction What factors affect price?
Prices are affected by the laws of supply and demand. They are also affected by actions of the government. Often times the government will intervene to set a minimum or maximum price for a good or service.

6 What is Equilibrium?

7 Equilibrium In order to find the equilibrium price and quantity, you can use supply and demand schedules. When a market is at equilibrium, both buyers and sellers benefit. How many slices are sold at equilibrium? Answer: 200

8 Disequilibrium What happens to prices??
If the market price or quantity supplied is anywhere but at equilibrium, the market is said to be at disequilibrium. Disequilibrium can produce two possible outcomes: Shortage— Surplus— A shortage causes prices to rise as the demand for a good is greater than the supply of that good. What happens to prices?? A surplus causes a drop in prices as the supply for a good is greater than the demand for that good. Checkpoint Answer: A surplus

9 Shortage and Surplus Shortage and surplus both lead to a market with fewer sales than at equilibrium. How much is the shortage when pizza is sold at $2.00 per slice? How much surplus when sold at $4? Answers: The shortage is 100 slices of pizza. Surplus = 100

10 Price Ceiling The government has a lot of influence on prices:
Price ceilings- a maximum price that can legally be charged for a good or service Price floor- a minimum price for a good or service are one way the government controls prices. Rent Control Sets a price ceiling on apartment rent Prevents inflation during housing crises Helps the poor cut their housing costs Can lead to poorly managed buildings because landlords cannot afford the upkeep.

11 The Effects of Rent Control

12 Price Floors A price floor is a minimum price set by the government. The minimum wage is an example of a price floor. Minimum wage affects the demand and the supply of workers. At what wage is the labor market at equilibrium? Answer: $6.60.

13 Supply of cars Video

14 Price Supports in Agriculture
Price supports in agriculture are another example of a price floor. They began during the Great Depression to create demand for crops. Opponents of price supports argue that the regulations dictate to farmers what they should produce. Supporters say that without government intervention, farmers would overproduce.

15 Review Now that you have learned about the factors that affect price, go back and answer the Chapter Essential Question. What is the right price?


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