The Price System at Work Pgs. 142 – 148 Chapter 6.2 The Price System at Work Pgs. 142 – 148

THE Price adjustment Process An Economic Model Just like supply & demand we can make models Market Equilibrium Price is stable The quantity supplied & demanded is the same Price QD QS Surplus/ Shortage $30 13 $25 1 11 10 $20 3 9 6 $15 $10 -7 $5 15 -15

Cont. Surplus Shortage Too many are made Too few are made Supply is greater than demand Shortage Too few are made Demand is greater than supply

Cont. Equilibrium Price The price where there is no surplus or shortage

Explaining & Predicting Prices Changes in Supply Supply goes up – prices go down Supply goes down… Elasticity This determines how much of a change in price S1

Cont. Changes in Demand Demand increases – price increases Demand decreases… D1

Cont. And when demand increases… S1 D D1

Practice Time… Price QD QS

The Competitive Price Theory The Price of every item will be roughly the same at every store In a limited region The size of the region changes based on the item More expensive item, bigger region