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The Price System at Work

The Price System at Work. 1-What are economic models used for? To analyze behavior and predict outcomes. 2-What is the equilibrium price?

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The Price System at Work

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  1. The Price System at Work

  2. 1-What are economic models used for? To analyze behavior and predict outcomes

  3. 2-What is the equilibrium price? When the supply and demand curves intersect: the price at which the number of units produced equals the number of units sold. There is neither a surplus nor a shortage of the product in the market.

  4. https://www.youtube.com/watch?v=7eZcPs9z9OA

  5. 3-What is a surplus? When the quantity supplied is larger than the quantity demanded, the difference between them is called excess supply. This creates a SURPLUS.

  6. 4-What can we assume about price based on the size of a surplus? It will go down.

  7. 5-What is a Shortage? When the quantity demanded is larger than the quantity supplied, the difference between them is called excess demand. This creates a SHORTAGE.

  8. 6-What will happen to the price and quantity supplied in the next trading period as a result of a shortage? Both will go up.

  9. 7-What tends to happen to the market once the equilibrium price has been reached? The market will clears, by leaving neither a shortage nor a surplus

  10. Price ceiling [keeps prices lower] A maximum legal price that can be charged for a product. Could lead to a shortage/Rent control

  11. Price floor [keeps prices higher] The lowest legal price that can be paid for a good or service Minimum wage

  12. PRICE CEILINGS A price ceiling is a government- imposed limit on the highest price firms can charge in a market. A price ceiling will cause a SHORTAGE. https://www.youtube.com/watch?v=R0h8kfA4i_A&index=9&list=PL-JlTsnpBVIESkJLqQ_SPfuQ_rIh3ttDR

  13. PRICE FLOORS A price floor is a government- imposed limit below which prices cannot fall. Price floors tend to cause a SURPLUS. Example- milk, minimum wage

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