Download - Ch. 6 Combined Notes : The Price System Price? $220 DOLCE GABBANA 6017B color 5018G Sunglasses
Ch. 6 Combined Notes : The Price System
Price?
$220DOLCE GABBANA 6017B color 5018G Sunglasses
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?
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II. Advantages of Our Price System
A. Neutral
1. does not favor buyer or seller
2. results from competition
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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
effective date
new minimum
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
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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.
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