Download is demanded - Cloudfront.net

Prices
(Supply + Demand)
Market System
• People’s self-interest drives the
economy
• Consumers want to minimize
their costs (Law of Demand)
• Producers want to maximize
their profits (Law of Supply)
Equilibrium
• Demand and supply are in balance
• Quantity supplied = Quantity
demanded
• Point at which demand curve
crosses supply curve
• Equilibrium Price
• Equilibrium Quantity
Equilibrium Price
Price where
quantity
demanded equals
quantity supplied
Equilibrium Quantity
Quantity that is both
demanded and
supplied at
equilibrium price
Equilibrium
Price
S
Peq
D
Quantity
Shortage
• Quantity demanded greater than
quantity supplied at a certain
price
• Shortage causes price to increase
- less is demanded - more is
supplied - shortage reduced prices go back down
Surplus
• Quantity supplied is greater than
the quantity demanded at a certain
price
• Surplus causes price to decrease more is demanded - producers
make less - supply is decreased prices go back up
Shortage and Surplus
Price
Surplus
S
Eq.
Shortage
D
Quantity
Prices Questions
• If a product is all of a sudden in high demand,
what do you think will happen to its price?
• If a product’s popularity drops significantly,
what do you think will happen to its price?
• If a product is much more available than it
used to be, what do you think will happen to
its price?
• If a product is less available to purchase, what
do you think will happen to its price?
Equilibrium and Demand
Changes
• New equilibrium is achieved when supply
curve moves to meet new demand
• Demand Increase= if supply does not
adjust prices rise, quantity exchanged
rises
• Demand Decrease=if supply does not
adjust prices fall, quantity exchanged
falls
Equilibrium and Demand
Changes: Demand Increase
• Copy the Graph on the Dry-Erase Board
• Find & label the Peq1 and the Qeq1
• Label the Demand Line D1
• Show an increase in demand (shift in
demand)
• Find the new Peq2 and Qeq2
Equilibrium and Demand
Changes:Demand Decrease
• Copy the Graph on the Dry-Erase Board
• Find & label the Peq1 and the Qeq1
• Label the Demand Line D1
• Show a decrease in demand (shift in
demand)
• Find the new Peq2 and Qeq2
Equilibrium and Supply
Changes:Supply Increase
• Copy the Graph on the Dry-Erase Board
• Find & label the Peq1 and the Qeq1
• Label the Demand Line D1
• Show an increase in supply (shift in
supply)
• Find the new Peq2 and Qeq2
Equilibrium and Demand
Changes:Supply Decrease
• Copy the Graph on the Dry-Erase Board
• Find & label the Peq1 and the Qeq1
• Label the Demand Line D1
• Show a decrease in supply (shift in
supply)
• Find the new Peq2 and Qeq2
Equilibrium and Supply
Changes
• New equilibrium is achieved when
demand curve moves to meet new supply
• Supply Increase=if demand does not
adjust prices fall, quantity exchanged
rises
• Supply Decrease=if demand does not
adjust prices rise, quantity exchanged
falls
•
•
•
•
•
•
•
•
Draw graphs for each of the following 8
situations and explicitly write what
happened to Peq (Increase, Decrease or
Indeterminate?). Name each of the graphs
the scenario provided
1) Supply: No Change
Demand: Increase
2) Supply: Decrease
Demand: No Change
3) Demand: No Change
Supply: Increase
4) Demand: Decrease
Supply: No Change
•
•
•
•
•
•
•
•
5) Supply: Increase
Demand: Increase
6) Supply: Increase
Demand: Decrease
7) Supply: Decrease
Demand: Decrease
8) Supply: Decrease
Demand: Increase
Graph the effects
of an increase in
the price of gas
on UPS
Imported TrucksCost of Production
Price
Eq2
S2
S1
Eq1
D
Quantity
Graph the effects of
increased purchasing
power for teenagers
after an increase in
the minimum wage
Effects of Added
Income
Price
S
Eq2
Eq1
D2
D1
Quantity
Graph the effects
of advancements
in computers on
the architecture
industry
Computers on
Architecture Technology
Price
S1
Eq1
Eq2
D
Quantity
S2
Laissez Faire
• What is Laissez Faire?
•Does the United States Government leave the
economy alone?
•In what ways does the government get
involved with the economy?
Government Intervention
• Limit imports- keep prices
high
• Govt. buying agricultural
products to increase demand
and keep prices high
• Rent controls
• Minimum wage
Forms of
Gov’t Intervention
• Price Floor
• Price Ceiling
Imagine the following scenario:
You are an unemployed single parent of
two young children living in Los Angeles.
You interview at the Los Angeles Times for
a position for an assistant in the mail room.
I, the interviewer, say that the hourly wage
is negotiable and asks you what the lowest
hourly wage you would be willing to work
for is. What do you say? How did you
come up with that number?
Price Floor
•Gov’t Regulation that
establishes a minimum
level for prices. It is illegal
to charge less than that
price
Price Floor Example – Minimum
Wage
• Minimum Wage – Wage
that the lowest amount an
employer legally can pay
a worker for a job
Agriculture Products - Price Floor
Example
• Agriculture Products
Unusually good weather leads to corn
farmers being able to produce an
unusually large corn crop. What happens
to the Price Equilibrium?
Suppose that if Farmers sell at this price, they
will not be able to cover their costs, many will
lose their land. What can be done?
Agriculture Products - Price Floor
Example Cont’d
• Gov’t sets a base price for corn
that will guarantee farmers a
minimum level of income. What
will result from this government
decision?
Government buys the surplus
Rent
• What do you guess is the average
monthly rent for a 2 bedroom 1
bathroom apartment in
• Yorba Linda?
• Manhattan?
Price Ceiling
• Gov’t regulation that
establishes a maximum price
for a particular good.
Producers cannot charge
prices above this set level.
Price Ceiling Example – Rent
Control
• Suppose a city gets so popular that
many people want to move there.
What happens to the price
equilibrium?
Price Ceiling Example – Rent
Control Cont’d
• Supply and Demand would
force a large portion of people
living there to move. To
prevent this from happening,
some cities set a price ceiling
on rent
Price Ceiling - Consequences
•Takes away incentive
to enter the market and
improve the product
•Creates Shortages