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Warm Up: 4 May 2011

Warm Up: 4 May 2011. What is a fair price for a cheeseburger? -1/4 lb. -Not fast food! How do you know this is a fair price? Explain…. Shortage. A shortage causes buyers to compete more intensely for the amount available.

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Warm Up: 4 May 2011

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  1. Warm Up: 4 May 2011 • What is a fair price for a cheeseburger? -1/4 lb. -Not fast food! • How do you know this is a fair price? Explain…

  2. Shortage • A shortage causes buyers to compete more intensely for the amount available. • It is how much more of a product buyers want to buy than sellers want to sell at a given price.

  3. Surplus • How much more of a product sellers want to sell than buyers want to buy at a given price. • Selling begins with competing more intensely against one another for consumers’ money.

  4. Market Clearing Price or Equilibrium Price • This is the price that balances the amount buyers want to buy with the amount the sellers want to sell. • This is the only price that balances or “clears” the market. • This is the price that people usually end up having to pay.

  5. Market Clearing Price (MCP): Where supply and demand curves intersect.

  6. Surplus: Anything above the equilibrium price. • Shortage: Anything below the equilibrium price.

  7. Based on the graph… • What is Market Clearing Price? • What price would be a surplus? • What price would there be a shortage

  8. Surplus, Shortage or Market Clearing Price? • A Lady Gaga concert will take place in six months. Tickets are $120. The concert has been sold out for a month. People are trying to sell tickets on Ebay. Some tickets are selling for almost $500. _______________________________________ The Steelers are selling tickets for $50 seat/per game. You can buy a ticket on the day of the game without having to wait in a line. Of the 60,000 seats in the stadium, only 20,000 seats are sold. _______________________________________

  9. Surplus, Shortage or Market Clearing Price? • Coca-cola has been selling at $3.00 per 12-pack for the past eight months at the Giant Eagle. You can buy a 12-pack anytime you enter the store, and the store never runs out before the next shipment to the supplier. _____________________________________

  10. Figure out whether the price will result in a surplus or shortage? Surplus or Shortage? $55 $20 $45 $90 5. What is the Market Clearing Price/Equilibrium Price?

  11. Prices send signals • Market price acts like a traffic officer • “Go” to a seller means that the price is high and they should increase production • “Stop” to a seller means that the price is low and they should decrease production • “Go” to a buyer means the price is low and they should buy more of the product • “Stop” to a buyer means the price is high and they should buy less of the product

  12. Rationing • Rationing is the distribution or allocation of a product. • Depending on surplus or shortage, rationing differs greatly. • If there is a shortage, people are willing to pay more for something. • One way of deciding who gets what is through an auction.

  13. Prices that Motivate • Besides rationing, prices perform necessary tasks. • They provide incentives to produce goods and services. • Some see shortages/surplus’ as an opportunity to make $$$$$$$$$$$.

  14. Updated statistics • As of 2009, the United States consumes 18.8 million barrels per day. http://www.indexmundi.com/energy.aspx • The same year the United States produced 5.3 million barrels per day. • http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A

  15. Changes in Prices and Production • As the economy goes through surplus and shortages, different companies rise and fall. • For instance, in 1950’s the biggest companies included car, steel and manufacturing. In the 2000’s the biggest companies are retail, computers and telecommunications. • Companies change with the times/economy

  16. Successful Companies • Innovation leading to greater efficiency, thus reducing marginal costs and allowing the company to maintain and sometimes increase their profits. • http://www.global100.org/

  17. Homework • Read all of chapter 5 • Study guide pages 35, 37-38

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