1. Demand, Supply, and Prices

2. Chapter 6: Demand, Supply, and Prices
KEY CONCEPT
The equilibrium price is the price at which quantity demanded and quantity supplied are the same.
WHY THE CONCEPT MATTERS
In a market economy, the forces of demand and supply work together to set a price that buyers and sellers find acceptable.

3. The Interaction of Demand and Supply
Section 1

6. Reaching the Equilibrium Price
KEY CONCEPTS
Trial and error may be necessary for market to arrive at equilibrium
Market may have surplus—more quantity supplied than demanded
Market may have shortage—more quantity demanded than supplied

8. Reaching the Equilibrium Price
EXAMPLE: Holiday Toys
Marketers sometimes overestimate popularity, others underestimate
Tickle Me Elmo doll introduced for holidays in 1996
at first sold slowly at $30; seemed stores would have surplus
fad caught on; shortage developed, price went up
by spring, supply doubled; demand decreased, price dropped to $25

12. In Class Paired Activity
Create a Market and Demand Curve for a common product.
Choose a product that all members purchase regularly.
One member represent the customer and draw the demand for a product. The other student represent the producer and draw the supply curve.
Combine your curves and label equilibrium price, surplus, and shortage.
Volunteers will be invited to share their interaction between supply and demand.

13. Prices as Signals and Incentives
Section 2

14. How the Price System Works
KEY CONCEPTS
Competitive pricing —selling products at lower prices than others
lures customers away from rival producers
maintains overall profits by selling more units

16. Prices Motivate Producers and Consumers
KEY CONCEPTS
Prices motivate consumers and producers in different ways
Incentive encourages people to take a certain action
In price system, incentives move producers and consumers
both act in ways consistent with own best interests

18. Reviewing Key Concepts
Use each of the terms below in a sentence that illustrates the meaning of the term:
competitive pricing
incentive

19. Intervention in the Price System
Section 3

20. Imposing Price Ceilings
KEY CONCEPTS
Government interferes to keep some prices from going too high
Price ceiling —legal maximum price a seller may charge for a product
set below the equilibrium price, so shortage results

21. Setting Price Floors KEY CONCEPTS
Government intervenes to increase income to certain producers
Price floor —legal minimum price buyers may pay for product
Various programs protect agricultural products
encourage farmers to produce abundant supply of food

23. Discussion Question
What is the Black Market?
Why does it exist?

24. Rationing Resources and Products
KEY CONCEPTS
In national emergency, government may distribute products, resources
Rationing —way of allocating products using factors other than price
Black market —illegal buying and selling of products
violates price controls, rationing

26. Concert Tickets
TicketMaster has a plan to introduce an auction for concert tickets.
The company is tired of scalpers make huge money from their product.
What is your prediction on how this strategy could lead to equilibrium prices?

27. Reviewing Key Concepts
Explain the relationship between the terms in each of these pairs:
price floor and minimum wage
rationing and black market