The price is right: price, equilibrium, elasticity, and incentives Students will be able to explain how prices are determined and analyze how prices change through the interaction of buyers and sellers in a market.

Bell work What is the incentive for sellers when pricing goods?

Intro: Think of a product you purchased recently. If the product decreased would you purchase more? If the product price doubled would you still purchase the product? Why or why not?

Video: https://www.youtube.com/watch?v=rJnm7janvUA

Factors that help determine price in a market economy Buyers want the best value at the lowest price possible, and sellers want the highest possible price to make a profit. Interaction of buyers and sellers, as well as supply and demand

3 main factors 1. how much buying power (money or credit) they have available. 2. how much satisfaction they would get from the product. ( use, status, or other measurements of value) 3. the relative price of the product as compared to other products.

How much are you willing to pay? Item Maximum amount you would pay Music download Gym shoes Can of pop Movie ticket Cell phone Newest video game

Vocab: Price- the amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service. Equilibrium price- the price at which the quantity demanded by buyers equals the quantity supplied by sellers; also called the market-clearing price Demand- the quantity of a good or service that buyers are willing and able to buy at all possible prices during a period of time

Vocab cont. Supply- the amount of a good or service that producers are willing and able to offer for sale at each possible price during a given period of time. Market price- the current price at which an asset or service can be bought or sold Incentive- any reward or benefit, such as money, advantage, or good feeling that motivates people to do something

Vocab cont Elasticity of demand- the percentage change in quantity demanded as a result of the percentage change in demand price. Generally, a relative response of a change in quantity demanded to a relative price change.

Will the price increase or decrease handout Read the statements and decide whether you think the price will increase or decrease

Factors affecting price Supply and demand Cost and expenses Consumer perceptions Competition

Audio clip of Bourne Identity What does this clip demonstrate? Illustrates the effect of elasticity and incentive

Elasticity Elasticity indicates how a change in price will affect changes in the amount demanded and supplied Elasticity of demand: demand changes when prices change When prices go up, people will often cut back and buy less, which will lead to a decrease in demand When prices start to fall, consumers will often demand more

Equilibrium The goal is to find the equilibrium price. The point at which the quantity of a good or service that buyers demand is equal to the quantity that sellers are supplying.

Many of these goods and services are luxuries that people do not need to survive. Wide range of items available if you have the money- smart phone upgrade, 3D TVs, jewelry, vacations Demand for these goods is very elastic and driven by price Ex) more consumers will purchase tickets for a vacation when the price is low than when it is high Most consumers spend the majority of their income on goods and services they need to survive.

Question: What are some other goods or services that have elastic demand?

Demand usually is inelastic for goods and services needed to survive. Most consumers consider it necessary to pay for: Power for their homes Prescription medicines Demand for these products remains about the same even when prices increase

Inelastic demand might change slightly This change is not significant Some consumers may not buy as much when price increase Overall demand will stay about the same. Price does not influence inelastic demand the same way that it influences elastic demand

Question: What are some other goods and services that have inelastic demand?

Group activity Create a graph showing supply and demand and equilibrium of the product in the supply and demand activity.