Download Supply and Demand Notes combined File

Chapter 6
Prices
Bell ringer 3/27
• Draw a supply and demand curve on the same
graph. From there, show what would happen
if there were an increase in supply and a
decrease in demand. Make sure to label your
original curves S1 and D1.
Combining Supply & Demand
• Equilibrium
– The point at which quantity demanded and
quantity supplied are equal
– In the market equilibrium , prices adjust to make
the quantity supplied equal to the quantity
demanded.
Equilibrium
Disequilibrium
• Any price or quantity not at equilibrium; when
quantity supplied is not equal to quantity
demanded in a market
– Excess Demand-When quantity demanded is more
than quantity supplied
– Excess Supply-When quantity supplied is more
than quantity demanded
Bell ringer 11/5
• Describe inelastic and elastic SUPPLY in your
own words.
• After defining each think of two examples for
each with a partner
Graph the following schedule on a supply and demand curve. Be
sure to label the equilibrium. What is the market equilibrium
price? From there illustrate a scenario where we see an increase
in demand. Label your new equilibrium “E2”.
Price of a slice of
Pizza
Quantity
Demanded
Quantity Supplied
Result
$.50
300
100
Shortage from
excess Demand
$1.00
250
150
Shortage from
excess Demand
$1.50
200
200
Equilibrium
$2.00
150
250
Surplus from excess
supply
$2.50
100
300
Surplus from excess
supply
$3.00
50
350
Surplus from excess
supply
• http://www.econedlink.org/lessons/index.php
?lid=961&type=educator
Bell ringer 11/6
• Explain why a business owner will lower the
price of products that are not selling quickly?
• Describe when a business owner might have
the incentive to raise prices.
• Think about when a firm raises its prices,
explain what that says to the consumer about
the demand for the product.
Changes in Market Equilibrium
Why does the market move toward
equilibrium levels?
• Excess demand will lead firms to raise prices.
Higher prices induce the quantity supplied to
rise and the quantity demanded to fall until
the 2 values are equal.
Role of Prices
• Prices serve a vital role in a free market
economy. Prices help move land, labor, and
capital into the hands of producers.
Answer the following with your
bell ringer for today
• Explain why the toy store from the video was
able to raise its prices for hula hoops.
Answer the following with your
bell ringer for today
• Describe “Silly Bandz” plans to keep demand
high for their product.
• Would there ever be a time when Silly Bandz
would have to drop their prices? Explain.
Bell ringer 11/7
• Describe 2 ways that prices can serve as their
own language between producers and
consumers. In other words, explain ways that
producers and consumers communicate with
each other through prices. (4 minutes)
• Turn to a partner, hand them your bell ringers
to compare. Circle anything that was similar
to what you thought of. If you thought of
something different, write it in their
notebook. Be sure to write your initials with
their bell ringer for today. (3 minutes)
The Advantages of Prices
Prices provide a language for buyers and sellers.
• Price as an Incentive
– Buyers and sellers alike look
at prices to find information
on a good’s demand and
supply.
– laws of supply and demand
describe how people and
firms respond to a change
in prices.
-Prices as Signals
– Prices as a traffic light.
– A relative high price is a
green light that tells
producers that a specific
good is in demand and
that they should use
their resources to
produce more. A low
price is a red light.
– For consumers, a low
price is a green light to
buy more of a good. A
high price is a red light to
stop and think carefully.
Price Ceilings
• Maximum price set by law, that sellers can
charge for a good or service
• Ex. Rent control
Price Floors
• A minimum price, set by the government
– Imposed when government wants sellers to
receive some minimum reward for their efforts
EX. Minimum wage
Shifts in Supply
• Since market equilibrium occurs at the
intersection of a demand curve and a supply
curve, a shift of the entire supply curve will
change the equilibrium price and quantity.
Shifts in Demand
• Fads cause shifts in the demand curve.
• Flexibility
–In many markets, prices are much
more flexible than output levels.
–Supply Shock-a sudden shortage of a
good, such as gasoline or wheat
• Price System is “Free”
–Free market pricing attempts to
distribute goods through millions of
decisions made daily by consumers
and suppliers.
• A Wide Choice of Goods
– One of the benefits of a price-driven economy is
the diversity of goods and services consumers can
buy.
• Efficient Resource Allocation
– Efficient resource allocation means that economic
resources-land, labor and capital-will be used for
their most valuable purposes.
• 2 Exceptions of Efficient Resources
– Imperfect Competition (higher prices can affect
consumer decisions)
– Spillover Costs-costs paid by customers
Bell ringer 11/10
• Create your own supply and demand curve.
Be sure to label each as D1 and S1. Label your
equilibrium as E1. From there show a
scenario where there would be an increase in
demand. Label your new demand as D2 and
your new equilibrium as E2. From there show
an increase in supply. Label the new supply
curve as S2 and new equilibrium as E3.
Government Intervention
• Markets tend towards Equilibriums but in
some cases the government steps in to control
prices
– Price Ceilings
– Price Floors
Reviewing shifts in supply and
demand-Illustrate each on a
supply and demand curve
1. If the cost of coffee beans increases, which
way will the supply or demand move for coffee
in the United States?
2. If the price of hot dogs increases which way
will the supply or demand move for hot dog
buns?
3. If the government places a tax on foreign oil,
which way will the supply or demand move for
gasoline in the U.S.?
On back of Gov intervention wksht
• Define Black market and provide and example.
• http://www.teachtci.com/pdf/freelessons/Black-Friday-Lesson-TCI.pdf