Objectives: Students will learn… <ul><li>How the market establishes an equilibrium price </li></ul><ul><li>How the equilibrium price balances supply & demand </li></ul><ul><li>How supply & demand models can be used to determine the equilibrium price of a good or service. </li></ul><ul><li>Common ways in which governments may change free market pricing and some of the policy reasons for intervention. </li></ul>
<ul><ul><li>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. </li></ul></ul>PRICE
Signals: <ul><li>Economic Indicators </li></ul>Prices are signals!
Market Forces <ul><li>Shortage —quantity demanded is greater than quantity supplied </li></ul><ul><li>Rationing —limiting demand </li></ul><ul><li>Surplus —quantity supplied is greater than quantity demanded. </li></ul><ul><li>Equilibrium price —equal supply and demand (the price that clears the market) </li></ul>
<ul><ul><li>What will happen to the equilibrium price if the demand for CDs suddenly increases? </li></ul></ul>
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