Download How Markets Operate

Today’s Warm Up

Due to scarcity, resources are limited. We
can’t all have whatever we want, whenever we
want. How does a country like the U.S. decide
who is going to get what?
Markets
Today’s LEQ: How do markets operate?
Important vocabulary: Demand, Market,
Equilibrium, Shortage, Supply, Surplus
Economic Systems

Economic systems address scarcity

What, how, and for whom to produce?
U.S. = mixed market economy
 Producers/Consumers (& limited
gov’t) answer these questions

Markets



The market is the most important economic
institution in a market economy
Markets exist when buyers and sellers interact
This interaction determines prices & therefore
allocates scarce goods and services
Market Incentives

Prices send signals and provide
incentives to buyers and sellers


What would happen if the price
of the average flat screen TV
jumped to $30,000?
When supply or demand
changes, market prices adjust,
affecting incentives

For example, think of gas prices
around peak vacation times!
Graphing Supply

Law of Supply:

When price
increases
(decreases), the
quantity supplied
increases
(decreases)
Graphing Demand

Law of Demand:

When price
increases
(decreases),
quantity demanded
decreases
(increases)
Equilibrium Price
(Market Clearing Price)

The market settles at
this price and
quantity


QS = QD
Why? At this point
of intersection,
buyers and sellers
agree on both price
and quantity
Surplus

If price is above the
equilibrium price,
sellers would want to
sell more than buyers
would want to buy

QS > QD
Shortage

If price is below the
equilibrium price,
buyers would want to
buy more than sellers
would want to sell

QD > QS
Game Time: A Market In Wheat
1.
2.
3.
4.
5.
6.
7.
At what price was wheat most frequently sold in
each round?
This price is known as the market clearing or
equilibrium price. Why would economists call it the
market-clearing price?
Why did prices become more clustered together in
later rounds?
Did buyers or sellers determine the price for wheat?
How did competition among the sellers and the
buyers influence the price?
What would happen if there were many more buyers
than sellers?
What would happen if there were more sellers than
buyers?
Activity 7.5



What is the equilibrium price?
What prices would result in a surplus?
What prices would result in a shortage?
Today’s Exit Ticket

Answer today’s LEQ on the back of Activity
7.5. Be sure to use all of the key vocabulary
listed below:

Demand, Market, Equilibrium, Shortage, Supply,
Surplus