Think about a time when you bought a product that you really wanted. Was the product worth the price? Did you see the same product at a lower price? How did that make you feel?
Prices as Signals
Price is the monetary value of a product that is established by supply and demand.
They communicate information and provide incentives to consumers and producers.
Serve as link between producers and consumers.
They perform an allocation function for four reasons
They favor neither the producer nor the consumer.
They are flexible.
They have no cost of administration.
They are common knowledge to consumers and producers.
Allocations w/out prices
Rationing is used to allocate goods and services without the use of price. Has pros and cons.
Does not need price.
There is a high admin. Cost.
Negative impact on motivation to work.
Price as System
They are favored because they do more for the consumer because the provide signals that help utilize resources.
They link all markets within the economy.
A 7.9 earthquake hits San Francisco. cement Local subway workers go on strike Taxi service The U.S. imposes a tariff on Japanese car imports. U.S. cars Two oil supertankers collide. gasoline Brad Pitt confides to People magazine that "he gets a big kick out of his hula hoop." Hula hoops Environmentalists urge consumers to boycott redwood products. redwood lumber Right or Left Supply or Demand Event Market
What is the problem with health insurance today?
Why are people skeptical about using insurance?
3. How do you think we need to fix this problem?
Because of the movement in the market (transactions), a compromise must take place to benefit all parties.
Economic models are used to explain the changes in price.
A situation that is reached when prices are relatively stable. Qty. of goods supplied equals the qty. of goods demanded.
Surpluses and Shortages
Surplus occurs when the qty. supplied is more than qty. demanded.
Surpluses and Shortages
Shortages are where qty. demanded is more than the qty. supplied.
Elasticity and Price
Prices can change dramatically based on the elasticity of the curve.
If the price changes and people don’t buy it, then it is time to change the price again.
Changes in supply and demand
Changes in supply and demand affect price changes as well. The shifts of both curves will force the price to be adjusted to find equilibrium.
Competitive Price Theory
Represents a set of ideal conditions & outcomes; it serves as a model to measure market performance.