Economics 4/26/11 http://mrmilewski.com

1. Economics 4/26/11 http://mrmilewski.com • OBJECTIVE: Examine how change in demand can affect the prices of goods. • I. Journal #19 pt.A -Read “Profiles in Economics” p.141 -Answer question #1 p.141 • II. Quiz#11 • III. Return of Chapter#5 Test • IV. Journal#19 pt.B -notes on how inelastic & elastic demand effects prices • V. Journal#19 pt.C -Questions on NBR • NOTICE: Journals 11-20 Due TOMORROW!

2. How is price determined? • Price is determined by the intersection of the supply and demand curves.

3. Figure 6.3b Figure 6.3a Inelastic Demand v. Elastic Demand

4. Changes in Demand • A change in demand, like a change in supply, can also affect the price of a good or service. • All of the factors we examined in Chapter 4–changes in income, tastes, prices of related products, expectations, and the number of consumers–affect the market demand for goods and services.

5. One example is the demand for gold. Figure 6.4 shows why gold prices have changed so dramatically over a 20-year period. Figure 6.4 Demand for Gold

6. Why Gold Prices Fell • Whenever economic conditions or political instability threatens, people tend to increase their demand for gold and drive the price up. • Whenever the supply of gold increases dramatically–as when a major holder of gold like the Bank of England sells half of its gold holdings–the supply of gold increases, driving the price down. • Price of gold 10/26/06: $584.40 • Price of gold 10/6/08: $886.40 • Price of gold 1/20/09: $846.94 • Price of gold 10/13/09: $1066.07 • Price of gold 10/11/10: $1340.36 • Price of gold 4/26/11: $1501.68

7. 2 Year Gold Price

8. 10 Year Gold

9. 36 Year Gold

10. NBR – segments 6-7 • 1.) Why did farmers adjust their milk production following the holiday season of 1998? • 2.) Why did Kodak cut jobs in 1999? • 3.) What does leaner & meaner mean? • 4.) What is the elasticity of vacation homes? • 5.) What is the elasticity of prescription drugs?

11. Economics 4/27/11 http://mrmilewski.com • OBJECTIVE: Examine the price system at work. • I. Journal#20 pt.A -Read “The Global Economy” p.138 -Answer questions (1-2) p.138 • II. Journal#20 pt.B -notes on the price system at work • III. Mindjogger -video quiz on price • NOTICE: Journals 11-20 Due!

12. Price Adjustment Process • “Because transactions in a market economy are voluntary, the compromise that eventually takes place must be to the benefit of both parties, or the compromise would not occur in the first place.” p.142

13. Market Equilibrium • When prices are relatively stable, and the quantity of goods and services supplied is equal to the quantity demanded.

14. Surplus & Shortage • Surplus – a situation in which the quantity supplied is greater than the quantity demanded at a given price. • Shortage – a situation in which the quantity demanded is greater than the quantity supplied at a given price.

15. The Price Adjustment Process

16. Explaining and Predicting Prices • Economists use market models to explain how the world around us works and predict how certain events such as changes in prices might occur. • A change in price is normally the result of a change in supply, a change in demand, or changes in both. • Elasticity of demand is also important when predicting prices.

17. Figure 6.3b Figure 6.3a Inelastic Demand v. Elastic Demand

18. Economic goals • The seven broad economic and social goals we examined in Chapter #2 often conflict with each other. This is why the government has been playing a larger role in the economy than someone like Adam Smith would have liked. • One way the government tries to achieve equity and security is by setting prices at “socially desirable” levels. • What does “socially desirable” mean?

19. Distorting Market Outcomes • Price ceiling – a maximum legal price that can be charged for a product. • Price ceilings can be found in places like NYC who put rent controls on housing in an attempt to make it affordable. • Price floor – the lowest legal price that can be paid for a good or service. • Minimum wage – the lowest legal wage that can be paid to most workers is an example of a price floor.

20. Rent control • For example, without rent controls the equilibrium price for housing in NYC might be $900 per month. At this price, suppliers would be willing to provide 2 million units of housing. • REMINDERS: Law of Demand – as price drops quantity demanded increases. Law of Supply – as price drops quantity supplied decreases. • If NYC were to put a price ceiling of $600 per month on rent, what would happen to quantity demanded? What about quantity supplied? • What is it called when quantity demanded exceeds quantity supplied?

21. Rent control in NYC

22. Federal Minimum Wage

23. Economics 4/28/11 http://mrmilewski.com • OBJECTIVE: Examine the price system at work. • I. Administrative Stuff -Attendance & Current Grades • II. Econ Vocabulary -worksheet on terms from Ch#6 • III. Short Film on Economic Concepts -questions on Econ Film • Parent Teacher Conference 12:30-3PM

24. Economics 4/29/11 http://mrmilewski.com • OBJECTIVE: Examine the success of Wal-mart & its effect on the United States. • I. Administrative Stuff -Attendance • II. Quiz#12 • III. Frontline:“Is Wal-mart Good for America?” -questions on film about Wal-mart • NOTICE:Chapter#6 Test Monday!