Prices

Advantages of Prices Prices serve as a link between producers and consumers This helps to answer the WHAT, HOW and FOR WHOM questions Prices help to make the market Competitive Prices allow consumers to make decisions about purchases

Economic Models When you combine a market Demand and Supply curve, you get a Market Model Market Equilibrium – a situation in which the quantity of goods supplied is equal to the quantity demanded Surplus – When the quantity supplied is more than the quantity demanded Shortage – Quantity supplied is less than the quantity demanded

Graph What does a change in demand look like? What does a change in supply look like?

Price Ceilings Setting a maximum legal price that can be charged for a product In New York, the demand for apartments would allow the monthly rent to climb to prices that would exclude the majority of the market. A price ceiling allows the average person to be able to rent an apartment.

Ceiling Price Quantity Supplied Quantity Demanded

Price Floors Setting a minimum legal price that can be paid for a good or service Minimum wage is a price floor, it is the minimum amount that can be paid for the service of an employee

Ceiling Floor Quantity Demanded Quantity Supplied

Price Supports In certain markets, Target Prices are set for goods, which is essentially a price floor In markets like Agriculture, the government tries to set target prices to stabilize the prices for consumers If the cost of production exceeds the target price, farmers will receive subsidies (money from the government) to make up for losses