Chapter 6--Prices

Market Equilibrium  The market equilibrium is the point at which the quantity supplied and quantity demanded for a product are equal at the same point

Market Equilibrium

Surplus: This exists when the quantity supplied exceeds the quantity demanded at the price offer (You have too much)

Shortage: This exists when the quantity demanded exceeds the quantity supplied at the price offered (You don’t have enough)

Price Ceiling is a government regulation that establishes a maximum price for a particular good Price Ceiling is a government regulation that establishes a maximum price for a particular good

Price Floor is a government regulation that establishes a minimum price for a particular good Price Floor is a government regulation that establishes a minimum price for a particular good

Rent Control—What is it? Its a price ceiling placed on apartment rent  Why have it in the first place?  It protects people from being forced to move—especially the poor in inner cities in the USA  BUT, it hurts landlords and apartment owners from maximum profits…  How can this be? Simple; the city or state passes a law in certain zones in the town where price ceilings are law………

Minimum Wage The minimum an employer may pay their employee In Minnesota as of July 1, 2010, the current minimum wage is: $7.25 for federal minimum; $6.15 for large businesses and $5.25 for small business--$2.13 for tipped workers Nationally, the minimum wage is $8.25 How can they do that?? A common exemption to the federal minimum wage is a company having revenue of less than $625,000 per year while not engaging in any interstate commerce. If the job is not subject to the federal Fair Labor Standards Act, then state, city, or other local laws may determine the minimum wage.

Should Minimum Wage Rise?? Who does it benefit? Who does it hurt?

States with minimum wage rates higher than the Federal States with no minimum wage law States with minimum wage rates the same as the Federal States with minimum wage rates lower than the Federal

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 Inventory is the quantity of goods a firm or business has on hand  All businesses want inventory---BUT not too much or too little. Why???  If it sits on the shelves, your not making money  If you have too little inventory, you may not meet the needs of your customers  How do you ‘move’ or get rid of a product????

How can demand lower or decrease supply? By new technology in a product or service or buy lowering the price

How can we increase or raise demand? FADS

 The financial and opportunity costs that consumers pay when searching for a good or service

 Fads are products which are popular for a short period of time  We see fads many times in products and services throughout the year  Examples: Must get Viking tickets to see Brett Farve play  Buy your State basketball T-shirts when the team goes to state this year

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What is supply shock? Not a good thing……. It’s a sudden shortage of a good  EX: gas

 Simple…It depends what the product is.  We know gas shortages can affect an economy but what about silly bandz?—Probably not………

Rationing is a system in which the government or other institutions decides how to distribute a good Rationing is a system in which the government or other institutions decides how to distribute a good

Consequences of Rationing: It is unfair---it distributes goods and services unfairly to the people It is unfair---it distributes goods and services unfairly to the people It is expensive---it costs too much money to track it It is expensive---it costs too much money to track it

Consequences of Rationing: Creates a black market where you trade illegal products and services at a higher price Creates a black market where you trade illegal products and services at a higher price

Have a Sale!!!

The End