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Thoughts—Fill in blanks

Thoughts—Fill in blanks. Consumers tend to demand (more/less) of a product when the price is low and (more/less) when the price is high. Producers tend to supply (more/less) of a product when prices are high and (more/less) when prices are low. Determining Prices 5.2.

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Thoughts—Fill in blanks

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  1. Thoughts—Fill in blanks • Consumers tend to demand (more/less) of a product when the price is low and (more/less) when the price is high. • Producers tend to supply (more/less) of a product when prices are high and (more/less) when prices are low.

  2. Determining Prices 5.2 • Market Equilibrium—Where the quantity supplied and quantity demanded for a product are equal at the same price. • The needs of both supplier and consumer are satisfied. • The forces of supply and demand are in balance.

  3. Surpluses 5.2 • Surplus—Exists when the quantity supplied exceeds the quantity demanded at the price offered. • Producers are willing to supply more of a product at a higher price than consumers are willing to buy at that price, therefore there is “extra” product left over.

  4. Surplus QS>QD 9 8 7 6 5 4 3 2 1 D Price S 10 20 30 40 50 60 70 Quantity

  5. Shortages 5.2 • Shortages—Exists when the quantity demanded exceeds the quantity supplied at the price offered. • Consumers are wanting more product at a lower price than suppliers can profitably supply, therefore, there is no product left to sell. • Who gets the product? How decided?

  6. 9 8 7 6 5 4 3 2 1 D Price S Shortage QS<QD 10 20 30 40 50 60 70 Quantity

  7. Shifts in Equilibrium 5.2 • Key: The equilibrium point also shifts to the new intersection of the curves. • 1996 Christmas season—Tickle Me Elmo has enormous demand with major shortages—What were the results?

  8. Managing Prices • Price Ceilings—A government regulation that establishes a maximum price for a particular good or service. • Ex. Affordable housing/ Rent controls Price Floors—A government regulation that establishes a minimum level for prices. Ex. Agricultural prices

  9. Consequences of Setting Prices • Interfering with Supply/Demand can cause unintended consequences and impair equilibrium. • Ex. Affordable housing--$600 ceiling/Equilibrium price is $800. • Supply of housing shrinks, Why? • Profits—Up or down? • New housing supply – Up or down? • Condition of existing rental units?

  10. Rationing • Rationing– A system in which a government or other institution decides how to distribute a product. • Ex. WW II—Tires, sugar, butter, coffee • Ex. Cuba today under communism/socialism • Ticket prices to football games(Supply/Demand? • Ration tickets to students to keep affordable • Consequences: Unfair, Expensive, Creates black markets

  11. Consequences of Rationing • Unfairness—Gives special treatment to students, alumni, etc. • Cost—Can be costly to implement • Takes a lot of hours to track/Hire people. • Black Markets—Rationing tends to encourage illegal charging of higher than official prices for an event, product, (Unfair). • (Opportunity for fakes).

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