150 likes | 507 Views
How do prices act as signals for consumers and producers?. Go Ahead…Take A Guess!!. What do prices do?. Prices convey information to both. What do high and low prices tell each? Prices help answer the (3) economic questions. IMPORTANT INFORMATION ABOUT PRICES.
E N D
How do prices act as signals for consumers and producers? Go Ahead…Take A Guess!!
What do prices do? • Prices convey information to both. • What do high and low prices tell each? • Prices help answer the (3) economic questions
IMPORTANT INFORMATION ABOUT PRICES • 1. They don’t favor either party – they result because of competition • Why can’t Chicken Run charge $500 for chicken fingers?
I don’t have anything to write up here • 2. They are flexible – allows for change • Disasters, weather, war effect price and people adjust • This is most often seen with products with which type of demand?
Don’t have anything for here either • 3. They provide choice – if they become too high, people can go elsewhere
Thought I had something for here…but I don’t • 4. Markets find their prices without outside help • Government does get involved as we will see
Here’s number 5 • 5. Prices are efficient – people can make decisions about purchases and behavior quickly • Example: Hong Kong tolls
Review • What system could be used to allocate resources without prices? • What are the problems with this system?
So how do we get to a price? • Draw a supply curve and demand curve on the same graph. • Label everything. • Find a point on the graph that represents the price and quantity that should be charged. • Label that point “E”.
The big questions: • What happens if price falls above this point? • What happens if price falls below this point? • How do shifts in Demand and Supply effect quantity and price?