Economics 10608 http:students.resa.netmilewski

1
Economics 10/6/08 http//students.resa.net/milews
ki

• OBJECTIVE Demonstration of Chapter5 and begin
  examination of price.
• I. Administrative Stuff
• -attendance
• -distribution of test
• II. Chapter5 Test
• III. Journal 19 pt.A
• -Read Business Week Newsclip p.126
• -Answer questions (1-2) p.126
• II. Journal 19 pt.B
• -notes on prices

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Stuff This Week

• Journals 11-20 Due Wednesday
• Parent Teacher Conference Thursday 5-8PM

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Prices as Signals

• Price the monetary value of a product as
  established by supply demand.
• Price is a signal that helps us make economic
  decisions.
• High prices are a signal for producers to produce
  more and consumers to buy less.
• Low prices are a signal for producers to produce
  less and consumers to buy more.

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Advantages of Prices

• 1.) Prices in a competitive market favor neither
  the producer nor the consumer.
• 2.) Prices in a market economy are flexible.
• 3.) Prices have no administrative costs and
  answer the questions WHAT, HOW, and for WHOM to
  produce.
• 4.) You have known it your entire life.

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How is price determined?

• Price is determined by the intersection of supply
  demand.

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Life without prices?

• Prices help allocate scarce resources, but what
  if there was no such thing as price?
• Rationing the government determines everyones
  fair share.
• Problem with determining what is fair.
• High administrative stuff (cost, enforcement,
  etc)
• No incentive to work hard.

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I Pencil
http//school.discoveryeducation.com/clipart/image
s/box-o-pencils4c.gif
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Economics 10/7/08 http//students.resa.net/milews
ki

• OBJECTIVE Examine how change in demand can
  affect the prices of goods.
• I. Journal 20 pt.A
• - Read Profiles in Economics p.141
• -Answer question 1 p.141
• II. Return of Chapter5 Test
• III. Journal20 pt.B
• -notes on how inelastic elastic demand effects
  prices
• IV. Journal20 pt.C
• -Questions on NBR

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How is price determined?

• Price is determined by the intersection of the
  supply and demand curves.

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Inelastic Demand v. Elastic Demand
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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
  4changes in income, tastes, prices of related
  products, expectations, and the number of
  consumersaffect the market demand for goods and
  services.

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Demand for Gold

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

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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
  dramaticallyas when a major holder of gold like
  the Bank of England sells half of its gold
  holdingsthe supply of gold increases, driving
  the price down.
• Price of gold 10/26/06 584.40
• Price of gold 10/6/08 886.40

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10 Year Gold
http//www.goldprice.org/gold-price-history.html
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30 Year Gold
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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?

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Economics 10/8/08 http//students.resa.net/milews
ki

• OBJECTIVE Examine the success of Wal-mart its
  effect on the United States.
• I. Administrative Stuff
• -Attendance
• -Journals 11-20 Due!
• II. FrontlineIs Wal-mart Good for America?
• -questions on film about Wal-mart
• NOTICE Parent Teacher Conference Tomorrow 5-8PM

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Economics 10/9/08 http//students.resa.net/milews
ki

• OBJECTIVE Examine the price system at work.
• I. Journal21 pt.A
• -Read The Global Economy p.138
• -Answer questions (1-2) p.138
• II. Journal21 pt.B
• -notes on the price system at work
• NOTICE Parent Teacher Conference Today 5-8PM

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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

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Market Equilibrium

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

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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.

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The Price Adjustment Process
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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.

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Inelastic Demand v. Elastic Demand
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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?

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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.

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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?

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Rent control in NYC
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Federal Minimum Wage
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Economics 10/10/08 http//students.resa.net/milew
ski

• OBJECTIVE Examine price as signals.
• I. Administrative Stuff
• -attendance
• II. Economics Supply Lab
• -working with supply demand
• III. Mindjogger
• -video quiz on price