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Economics 10608 http:students.resa.netmilewski

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Figure 6.4 shows why gold prices have changed so dramatically over a 20-year period. ... Why Gold Prices Fell ... their demand for gold and drive the price up. ... – PowerPoint PPT presentation

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Title: 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

2
Stuff This Week
  • Journals 11-20 Due Wednesday
  • Parent Teacher Conference Thursday 5-8PM

3
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.

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 questions 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 supply
    demand.

6
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.

7
I Pencil
http//school.discoveryeducation.com/clipart/image
s/box-o-pencils4c.gif
8
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

9
How is price determined?
  • Price is determined by the intersection of the
    supply and demand curves.

10
Inelastic Demand v. Elastic Demand
11
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.

12
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.

13
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

14
10 Year Gold
http//www.goldprice.org/gold-price-history.html
15
30 Year Gold
16
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?

17
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

18
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

19
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

20
Market Equilibrium
  • When prices are relatively stable, and the
    quantity of goods and services supplied is equal
    to the quantity demanded.

21
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.

22
The Price Adjustment Process
23
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.

24
Inelastic Demand v. Elastic Demand
25
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?

26
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.

27
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?

28
Rent control in NYC
29
Federal Minimum Wage
30
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
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