1 Essential Question: Define the price system, Explain how producers and consumers use price to communicate, identify 5 benefits and 3 shortcomings of the price system. The Price System SECTION 1

2 What is the price system and what does it do? A system that producers/consumers use to communicate their needs and wants to each other through the prices that they are willing to sell/ willing to pay for products. The PS communicates the idea that whatever costs (resources) go into production, consumer should ultimately pay for them as they are the ones who benefit from the product. The Price System SECTION 1

3 How producers use price to communicate. Through the price of a product producers tell consumers How much it costs to produce How much it costs to distribute The Price System SECTION 1

4 How consumers use price to communicate. Through the price of a product consumers tell producers Yes, I want and can afford your product, make more No, I do not want or cannot afford your product, make less OR make something else. The Price System SECTION 1

5 5 Benefits of the price system Group Work: With your group, use your book and the whiteboard to identify and briefly explain each of the five benefits of the price system. Then provide a 20-word or less example. The Price System SECTION 1

6 5 Benefits of the price system Provides information- The Price System SECTION 1

7 5 Benefits of the price system Provides incentive- The Price System SECTION 1

8 5 Benefits of the price system Provides Choice- The Price System SECTION 1

9 5 Benefits of the price system Provides Efficiency-. The Price System SECTION 1

10 5 Benefits of the price system Provides Flexibility- The Price System SECTION 1

11 3 Limitations of the price system (also called Market Failures: Externalities-when individuals involved in the production/consumer relationship benefit or are harmed as a result of the production or consumption Example, when La Pinata gets additional business from the construction of a new Kaiser (even though they did not pay for this benefit) The Price System SECTION 1

12 3 Limitations of the price system cont.: Public Goods When the government creates a service that it requires all citizens to pay for such as national defense or law enforcement. The issue is that ALL who can pay must pay for a service that benfits those who might not be able to pay for it. The Price System SECTION 1

13 3 Limitations of the price system: Instability Sometimes events cause the price system to change dramatically and cause consumers and producers to stop consuming/producing Example: A hurricane causes a spike in demand for generators and prices skyrocket leaving those who need the product unable to afford it The Price System SECTION 1