Economics 3804

1
Economics 3/8/04

• OBJECTIVE Begin analysis of prices and decision
  making.
• I. Journal 22 pt. A
• -read Profiles in Economics p.141
• -answer question 1 p.141
• II. Journal 22 pt. B
• -notes on price signals
• III. Homework due Friday 3/12/04
• 1.) Read Ch6 sec2 p.142-148
• -answer questions (3-6) p.148
• 2.) Read Ch6 sec3 p.150-155
• -answer questions (3-6) p.155

2
Homework due Friday 3/12/04

• 1.) Read Ch6 sec2 p.142-148
• -answer questions (3-6) p.148
• 2.) Read Ch6 sec3 p.150-155
• -answer questions (3-6) p.155

3
Prices as Signals

• Price the monetary value of a product as
  established by supply and 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.

4
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 question WHAT, HOW, and for WHOM to
  produce.
• 4.) You have known it your entire life!

5
How is price determined?

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

6
Economics 3/9/04

• OBJECTIVE Examine the price system at work
• I. Journal 23 pt. A
• -Read The Global Economy p.138
• -Answer questions (1-2) p.138
• II. Journal 23 pt. B
• -Gold Cold, Hard, Cash

7
Homework due Friday 3/12/04

• 1.) Read Ch6 sec2 p.142-148
• -answer questions (3-6) p.148
• 2.) Read Ch6 sec3 p.150-155
• -answer questions (3-6) p.155

8
Economics 3/10/04

• OBJECTIVE Examine the price system at work.
• I. Journal 24 pt. A
• -Read DISH network clients go without CBS,MTV
• -Read Gasoline climbs to 1.74
• -Read Prices as a System p.140
• II. Journal 24 pt. B
• -questions notes on prices

9
Questions on Readings

• 1.) What is the dispute between Viacom
  EchoStar all about?
• 2.) What reasons are cited for the recent rise
  in gas prices?
• 3.) What did a permanent rise in gas prices
  during the 1970s result in?

10
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

11
Market Equilibrium

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

12
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.

13
Economics 3/11/04

• OBJECTIVE Examine the price system at work.
• I. Journal 25 pt. A
• -Read Cover Story p.142
• -What was the selling price of a graduation
  ticket
• II. Journal 25 pt. B
• -notes on the price system
• III. Economics Lab

14
Explaining and Predicting Prices

• Economists use their market models to explain how
  the world around us works and to 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.

15
Inelastic Demand v. Elastic Demand
16
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.

17
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.

18
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.
• Current price of gold 404.20

19
Economics 3/12/04

• OBJECTIVE Examine how price determines supply
  and demand.
• I. Journal 26 pt. A
• -Read and summarize three of the following
  articles from todays Free Press
• 1.) Dow plunges amid worries about terror C1
• 2.) Carmakers revive 401(k) match C1
• 3.) Borders says profits rose 11.8 last year
  C2
• 4.) GM exec Moving jobs to India is about
  vehicle development C1
• 5.) Sheriff targets truckers B4
• II. Econ. Lab pt. B