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AGENDA Fri 2/10 & Mon 2/13 •Review HW & Complete Wkshts •Supply Quiz •QOD #12: Market at Shawshank •Where “X” marks the spot •Moving to Equilibrium •S&D Poster Project Overview (Planning session) •HW: pg 119 #1-8, pg 130 #1-5 •Part 2 Looking for S&D Project DUE: Tues 2/14 & Wed 2/15 •S& D Poster Project •Study for Market Quiz The Market @ Shawshank In a prison economy, goods are often traded in return for cigarettes rather than for dollars. Why do you think that cigarettes, instead of dollars, are used as a medium of exchange in a prison? Why aren’t cigarettes commonly used for purchasing goods in our “outside” economy? The fee that Red charges to smuggle goods into Shawshank Prison is set to cover his actual costs to supply the good plus the expected “risk” cost. What happens to the P and Q of the goods supplied to inmates compared to if goods were not restricted in the prison economy? Would you expect prison life to be as bad if inmates were allowed to freely participate in market exchanges as in the “outside” economy? Explain. Putting S & D Together = Market • Equilibrium = QD = Qs – the point where the supply and demand curves intersect – Equilibrium quantity is the quantity of a good suppliers and consumers are willing and able to offer for sale and purchase, respectively – Equilibrium price is the price at which both suppliers and consumers are willing and able to make the exchange Shortage = QD > QS Surplus = QS > QD Moving to Equilibrium • Why does the price rise when there is a shortage? – some buyers will not get the products they want to buy and will be willing to offer a higher price – higher prices will motivate suppliers to produce more • Why does price fall when there is a surplus? – with a surplus, suppliers are not able to sell all of their product – the expenses of storing inventories of unsold goods will cause the seller to lower his price in order to reduce the surplus and/or reduce future output