The Price System

1
The Price System

• Chapter 21
• Demand, Supply Prices

2
Demand

• Demand is the amount consumers are willing to buy
  at all prices.
• Consumers control the demand-side of our economy.
• Must have want, willingness, resources!
• The Law of Demand says as prices increase, the
  quantity demanded decreases. This principle is
  illustrated by an auction. The price increases,
  but the number of buyers decreases to one.

3
Demand

• What is the difference between a demand schedule
  a demand curve?
• Which way does the demand curve always slope?
  Why?
• Do Demand graphing exercises.
• Set up graph using equal intervals on both axes.
  Label P, Q, D, 0.
• Discuss the law of diminishing marginal utility
  with example.

4
Factors that change demand

• Changes in the population of consumers
• Ship deployment/return
• Changes in tastes or trends
• Beanie babies
• Changes in income
• Minimum wage
• Changes in expectations
• Gas prices
• Changes in substitutes
• Coke vs. Pepsi
• Changes in complements
• Peanut butter jelly

5
Elasticity of demand

• Elastic demand means there is a great difference
  between quantity demanded and changes in price.
• Lots of competition, substitutes causes
  elasticity (Pepsi, ex)
• Inelastic demand means quantity demanded varies
  little with changes in prices.
• Usually lack of competition or substitutes cases
  inelasticity. (Gasoline, ex)

6
Assignment

• Read 21.3 complete questions for p. 74.
• Due Monday!

7
Supply

• Supply is the amount producers are willing to
  sell at all prices.
• Producers control supply-side of our economy.
• What is the difference between a supply schedule
  a supply curve?
• Which way does the supply curve always slope?
  Why?
• The Law of Supply says as prices increase the
  quantity supplied increases.
• Do Supply Graphing Exercises, p. 73.

8
Supply

• How does profit motive relate to the law of
  supply?
• Higher prices mean more profit
• Market supply is the amount of a product that all
  producers are willing to sell at all prices.
• Factors business consider include costs,
  competition, and consumer demand when businesses
  set prices.

9
Factors that change Supply

• Change in cost of resources Cost of sugar (ex)
• Change in productivity Labor slowdowns (ex)
• Change in technology Check out scanners (ex)
• Change in government policies
• Taxes
• Minimum wage
• Subsidies
• Change in expectations Hurricane season (ex)
• Change in the number of suppliers or competition
• Border Station vs. Southland
• Food Lion

10
Elasticity of Supply

• Elastic supply means there is a great difference
  between quantity supplied and changes in price.
• Lots of competition, substitutes causes
  elasticity (Gas stations in Moyock, ex)
• Inelastic supply means quantity supplied varies
  little with changes in prices.
• Usually lack of competition or substitutes cases
  inelasticity. (Food Lion, ex)

11
Setting Prices

• Producers want high prices.
• Consumers want low prices.
• Prices must be high enough to make a profit and
  low enough to attract consumers.
• Shortages cause prices to increase. DgtS
• Surpluses cause prices to decrease. DltS
• Where producers and consumers wants intersect is
  how prices are determined. This is called the
  market or equilibrium price.
• Graphing exercises.

12
Setting Prices

• Price ceilings are limits on businesses on how
  much they can charge for a good or service. These
  are VERY rare in our economy. Ex. Is rent
  controls in NYC
• Price floors are limits on how little businesses
  can charge for a good or service. These prices
  are kept low by subsidies to the industry. These
  are not very common any more. Ex. Is milk prices
• Consumers and producers largely determine prices
  in our economy today.

13
Setting Prices

• What are the advantages of our price system in
  Capitalism?
• Prices are neutral
• Prices are flexible
• Prices offer choice
• Prices are familiar

14
Practice and exit ticket

• Graph the chart at the bottom of p. 74.
• Label all 10 points!
• Discuss
• Graph one of the schedules on p. 75 label
  correctly. Raise your hand when done to be
  checked.
• Complete the final graph on a separate sheet and
  turn in as your exit ticket.