Chapter 6: Prices Section 1 - Weebly

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Chapter 6: PricesSection 1

Objectives1. Explain how supply and demand createequilibrium in the marketplace.2. Describe what happens to prices whenequilibrium is disturbed.3. Identify two ways that the governmentintervenes in markets to control prices.4. Analyze the impact of price ceilings andprice floors on a free market.Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 2

Key Terms equilibrium: the point at which thedemand for a product or service is equal tothe supply of that product or service disequilibrium: any price or quantity notat equilibrium shortage: when quantity demanded ismore than quantity supplied surplus: when quantity supplied is morethan quantity demandedChapter 6, Section 1Copyright Pearson Education, Inc.Slide 3

Key Terms, cont. price ceiling: a maximum price that canlegally be charged for a good or service rent control: a price ceiling placed onapartment rent price floor: a minimum price for a good orservice minimum wage: a minimum price that anemployer can pay a worker for one hour oflaborChapter 6, Section 1Copyright Pearson Education, Inc.Slide 4

Introduction What factors affect price?– Prices are affected by the laws of supply anddemand.– They are also affected by actions of thegovernment. Often times the government will intervene to set aminimum or maximum price for a good or service.Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 5

What is Equilibrium?Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 6

Equilibrium In order to find the equilibrium price and quantity,you can use supply and demand schedules. When a market is atequilibrium, bothbuyers and sellersbenefit.– How many slicesare sold atequilibrium?Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 7

Disequilibrium Checkpoint: What market condition might causea pizzeria owner to throw out many slices ofpizza at the end of the day?– If the market price or quantity supplied is anywherebut at equilibrium, the market is said to be atdisequilibrium.– Disequilibrium can produce two possible outcomes: Shortage—A shortage causes prices to rise as thedemand for a good is greater than the supply of thatgood. Surplus—A surplus causes a drop in prices as thesupply for a good is greater than the demand for thatgood.Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 8

Shortage and Surplus Shortage and surplus both lead to a market withfewer sales than at equilibrium.– How mush is the shortage when pizza is sold at 2.00per slice?Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 9

Price Ceiling While markets tend toward equilibrium on theirown, sometimes the government intervenes andsets market prices. Price ceilings are one waythe government controls prices.– Rent Control Chapter 6, Section 1Sets a price ceiling on apartment rentPrevents inflation during housing crisesHelps the poor cut their housing costsCan lead to poorly managed buildings becauselandlords cannot afford the upkeep.Copyright Pearson Education, Inc.Slide 10

The Effects of Rent ControlChapter 6, Section 1Copyright Pearson Education, Inc.Slide 11

Price Floors A price floor is a minimumprice set by thegovernment. Theminimum wage is anexample of a price floor. Minimum wage affectsthe demand and thesupply of workers.– At what wage is thelabor market atequilibrium?Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 12

Price Supports in Agriculture Price supports in agriculture are anotherexample of a price floor. They began during the Great Depressionto create demand for crops. Opponents of price supports argue thatthe regulations dictate to farmers whatthey should produce. Supporters say that without governmentintervention, farmers would overproduce.Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 13

Review Now that you have learned about thefactors that affect price, go back andanswer the Chapter Essential Question.– What is the right price?Chapter 6, Section 1Copyright Pearson Education, Inc.Slide 14

price ceiling: a maximum price that can legally be charged for a good or service rent control: a price ceiling placed on apartment rent price floor: a minimum price for a good or service minimum wage: a minimum price that an employer can pay a worker for one hour of labor

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