Download - The Price System ( Markets)
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The Price System (Markets)
©2012, TESCCC
Economics Unit 4, Lesson 1
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Potential Buyers Potential Sellers
Markets
The interaction of buyers and sellers determines the price and quantity of most goods in a market system.
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Buyers and sellers have opposite goals.
Buyers want the lowest price.Sellers want the highest price.
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MarketsDraw Supply & Demand
Demand Schedule
$ QD
10.00 60
20.00 40
30.00 20
Supply Schedule
$ QS
10.00 20
20.00 40
30.00 60
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Market
D
S$
EP 20
40EQ
Q
30
20 60
10
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With supply and demand both on graph, we now have a
market.
Market equilibrium – where quantity demanded and quantity
supplied are equal
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Based on 2 Assumptions
1. Everything in market has a price.
2. Price is best measure to answer the three basic economic
questions.
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Prices act as signals.
Signals to adjust
– Demand
– Supply
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Disequilibrium
QS = QD
This creates a shortage or a surplus.
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Surplus
• A price above equilibrium creates a surplus.
• A surplus is when QS is greater than QD.
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SurplusExcess Supply
QS > QD
D
SP
EP 20
40EQ
QQD QS
30
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Shortage
• A price below equilibrium created a shortage.
• Shortage is when QD is greater than QS.
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Shortage Excess Demand
QD > QS
D
S$
EP20
40EQ Q
QS QD
10
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Objectives
1. Identify the determinant that causes a change in equilibrium price.
2. Construct a market, and graph a change in supply and demand with new equilibrium.
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What does it take to make a market?
• Buyer = demand
• Seller= Supply
Draw a market and label
• P
• Q
• S & D
• EP & EQ
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Product: Toothpaste
S
D
$
EQ
EEP
Q©2012, TESCCC
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Show what would happen if Crest has a very successful ad campaign.
Change in D?or
Change in S?
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Product: Toothpaste
S
D
1
$
Q
E1EP
1
EQ
1
©2012, TESCCC
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Product: Toothpaste
S
D
1
$
Q
E1
E2
D
2
EP
2EP
1
EQ
2
EQ
1
©2012, TESCCC
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What happened to EP? Increased
To EQ?Increased
So we can generalize and say if…
D EP EQ
©2012, TESCCC
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Show what would happen if the price of seaweed goes up.
Change in D?or
Change in S?
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Product: Toothpaste
S
D
1
$
Q
E1EP
1
EQ
1
©2012, TESCCC
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Product: Toothpaste
S1
D
1
$
Q
E1EP
1
EQ
1
S2
E2EP
2
EQ
2
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This was caused by a change in the cost of inputs. Seaweed is a major ingredient of toothpaste.
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What happened to EP? Increased
To EQ?Decreased
So we can generalize and say if…
S
EP
EQ ©2012, TESCCC
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Show what would happen if a new machine can harvest seaweed faster
and cheaper.
Change in D?or
Change in S?
©2012, TESCCC
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Product: Toothpaste
S
D
1
$
Q
E1EP
1
EQ
1
©2012, TESCCC
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Product: Toothpaste
S1
D
1
$
Q
E1EP
1
EQ1 EQ2
S2
EP2
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What happened to EP?Decreased
What happened to EQ?Increased
So we can generalize and say if…
S EP EQ ©2012, TESCCC
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Show what would happen if the Surgeon General
announced that toothpaste was harmful to your heart.
Change in Demand or
Change in Supply?
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Product: Toothpaste
S1
D
1
$
Q
E1
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Product: Toothpaste
S
D
1
$
Q
E1
EP2
EQ2
D2
EP1
EQ
1
©2012, TESCCC
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What happened to EP?
What happened to EQ?
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Both decreased.
We can generalize and say if…
D EP EQ
©2012, TESCCC