Chapter Price 6

Objectives: Students will learn… How the market establishes an equilibrium price How the equilibrium price balances supply & demand How supply & demand models can be used to determine the equilibrium price of a good or service. Common ways in which governments may change free market pricing and some of the policy reasons for intervention.

How the market establishes an equilibrium price

How the equilibrium price balances supply & demand

How supply & demand models can be used to determine the equilibrium price of a good or service.

Common ways in which governments may change free market pricing and some of the policy reasons for intervention.

What factors do you consider when deciding whether to purchase an item? Price is probably one of the factors you think about. Low prices may attract buyers, but they also impact sellers. In a market economy, prices are determined by supply and demand. PRICE

What factors do you consider when deciding whether to purchase an item? Price is probably one of the factors you think about. Low prices may attract buyers, but they also impact sellers. In a market economy, prices are determined by supply and demand.

Signals: Economic Indicators Prices are signals!

Economic Indicators

Market Forces Shortage —quantity demanded is greater than quantity supplied Rationing —limiting demand Surplus —quantity supplied is greater than quantity demanded. Equilibrium price —equal supply and demand (the price that clears the market)

Shortage —quantity demanded is greater than quantity supplied

Rationing —limiting demand

Surplus —quantity supplied is greater than quantity demanded.

Equilibrium price —equal supply and demand (the price that clears the market)

What will happen to the equilibrium price if the demand for CDs suddenly increases?

What will happen to the equilibrium price if the demand for CDs suddenly increases?