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The Price System ( Markets)

The Price System ( Markets). Economics Unit 4, Lesson 1. Potential Buyers. Potential Sellers. Markets The interaction of buyers and sellers determines the price and quantity of most goods in a market system.

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The Price System ( Markets)

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  1. The Price System (Markets) Economics Unit 4, Lesson 1

  2. Potential Buyers Potential Sellers Markets The interaction of buyers and sellers determines the price and quantity of most goods in a market system.

  3. Buyers and sellers have opposite goals.Buyers want the lowest price.Sellers want the highest price.

  4. MarketsDraw Supply & Demand Demand Schedule $ QD 10.00 60 20.00 40 30.00 20 Supply Schedule $ QS 10.00 20 20.00 40 30.00 60

  5. Market $ 30 S EP 20 10 D Q 40 EQ 60 20

  6. With supply and demand both on graph, we now have a market.Market equilibrium – where quantity demanded and quantity supplied are equal

  7. Based on 2 Assumptions • Everything in market has a price. • Price is best measure to answer the three basic economic questions.

  8. Prices act as signals. • Signals to adjust • Demand • Supply

  9. Disequilibrium QS = QD This creates a shortage or a surplus.

  10. Surplus • A price above equilibrium creates a surplus. • A surplus is when QS is greater than QD.

  11. SurplusExcess SupplyQS > QD P S 30 EP 20 D QS Q QD 40 EQ

  12. Shortage • A price below equilibrium created a shortage. • Shortage is when QD is greater than QS.

  13. Shortage Excess DemandQD > QS $ S EP20 10 D QD 40 EQ QS Q

  14. Objectives • Identify the determinant that causes a change in equilibrium price. • Construct a market, and graph a change in supply and demand with new equilibrium.

  15. What does it take to make a market? • Buyer = demand • Seller= Supply Draw a market and label • P • Q • S & D • EP & EQ

  16. Product: Toothpaste $ S E EP D Q EQ

  17. Show what would happen if Crest has a very successful ad campaign. Change in D? or Change in S?

  18. Product: Toothpaste $ S E1 EP1 D1 Q EQ1

  19. Product: Toothpaste $ S E2 EP2 E1 EP1 D2 D1 Q EQ1 EQ2

  20. What happened to EP? Increased To EQ? Increased So we can generalize and say if… D  EP  EQ 

  21. Show what would happen if the price of seaweed goes up. Change in D? or Change in S?

  22. Product: Toothpaste $ S E1 EP1 D1 Q EQ1

  23. Product: Toothpaste S2 $ S1 E2 EP2 E1 EP1 D1 Q EQ2 EQ1

  24. This was caused by a change in the cost of inputs. Seaweed is a major ingredient of toothpaste.

  25. What happened to EP? Increased To EQ? Decreased So we can generalize and say if… S  EP  EQ 

  26. Show what would happen if a new machine can harvest seaweed faster and cheaper. Change in D? or Change in S?

  27. Product: Toothpaste $ S E1 EP1 D1 Q EQ1

  28. Product: Toothpaste $ S1 S2 E1 EP1 EP2 D1 EQ1 EQ2 Q

  29. What happened to EP?DecreasedWhat happened to EQ?IncreasedSo we can generalize and say if… S EP EQ 

  30. Show what would happen if the Surgeon General announced that toothpaste was harmful to your heart. Change in Demand or Change in Supply?

  31. Product: Toothpaste $ S1 E1 D1 Q

  32. Product: Toothpaste $ S E1 EP1 EP2 D1 D2 EQ2 Q EQ1

  33. What happened to EP?What happened to EQ?

  34. Both decreased.We can generalize and say if… D  EP  EQ 

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