Download Ch. 6.1 Notes : Prices

Ch. 6 Combined Notes : The
Price System
Price?
DOLCE GABBANA 6017B
color 5018G Sunglasses
$220
I.
Prices as Signals
A. In our society, prices are determined
by the Supply and Demand of
products.
B. Price Equilibrium > prices of
products eventually reach a mid-point
where supply equals demand
C. this is the price where buyers and sellers
have reached a compromise
REGULAR PRICE?
55 minute
massage
Walmart Faded
Glory Jeans
Vans Crespi Authentic
Shoes
Hollister Boot Cut “destroyed”
II. Advantages of Our Price System
A. Neutral
1. does not favor buyer or seller
2. results from competition
Blackberry launches Playbook iPad
rival with 7 inch screen in time for
Christmas
B. Flexible
1. depends on certain events
2. encourages change
if something is not
selling
C. No gov cost
1. gov stays out. Lets S & D determine
price
D. Efficient system
1. everyone understands prices and will
act accordingly to buy/sell or not
III. Sometimes, government will not let S & D
determine prices when they establish a…
A. Price Ceiling >> price is set by gov.
below equilibrium price
1. Results in a Shortage of product >>
not enough Supply to meet Demand
a. Example>>>
B. Price Floor >>> gov. sets a minimum
price that is above equilibrium.
1.Example : Agricultural Products
minimum wage laws
new minimum
effective date
wage
1-Jan-08
$8.00
1-Jan-07
$7.50
1-Jan-02
$6.75
1-Jan-01
$6.25
1-Mar-98
$5.75
1-Sep-97
$5.15
1-Mar-97
$5.00
1-Oct-96
$4.75
1-Jul-88
$4.25
2. Results in a Surplus of the
product>>too much supply, not
enough demand
a. Example >>>
C. Prices will not be in the middle if ….
1. the product is a loss leader >
priced below equilibrium
to attract customers
2. buyers are ignorant and can be
taken advantage
MSRP = $44,300 Invoice = $40,755
IV.
Predicting Prices (4 steps)
1. mark the current equil. price
2. do the line shift
3. look at the new equil. price
4. Did price increase or decrease?
V.
Example: Will Equil Price Increase or Decrease when each of the
following occurs?
A. S goes up ( shift right)
B. D goes down ( shift left)
C. The cost of computer chips increase. As a
result, computer makers must cut
production of computers.
D. After her official break up with Ken,
sales of Barbie Dolls increased
when she started seeing Blaine.
Zune - HD 16GB* MP3
Player - Black
Jay-Z: The BP3
Tour
STAPLES Center
Los Angeles, CA
Fri, Mar 26, 2010
07:30 PM