1. Making Decisions in a Market Economy
Chapter 6 Lesson 1
Making Decisions in a Market Economy

2. What You’ll Learn How businesses make decisions Market vs Command
Law of Supply and Demand
How profits are determined

3. Initiation
Share an experience when you have had difficulty purchasing a popular product that was in limited supply?

4. Allocating Resources All societies have resources
Economics = study of how societies decide what to produce, how to produce it and how to distribute.
Why are resources considered scarce?
People can’t consume everything they want
Consumers and businesses have to make a choice
What they give up is called an opportunity cost
Example: Manager on pg 135

5. The Law of Supply and Demand
Demand = quantity of goods or services that consumers are willing to purchase at various prices
Variables that affect price: needs/wants and income
What happens when price increases? Why?

6. The Law of Demand
As the price of a good increases, the quantity of that good demanded falls.

7. The Law of Supply
As the price of a good rises, producers are willing to supply more of that good.

8. Determining Price How is price determined in a market economy?
Law of supply and demand = price of a product or service adjusts until amount businesses are willing to produce equals the amount consumers are willing to consume.
Equilibrium Price = point at which supply equals demand
Gasoline example: pg 139

9. The Law of Supply and Demand
The price at which supply equals demand is known as the equilibrium price.

10. Determining Profits
Managers must understand supply and demand to correctly set a price that maximizes profit.
Profit=difference between revenue and costs
Estimating revenue-how many will be sold?
Estimating costs
Fixed=always paid-rent, taxes
Variable=labor or materials
Breakeven point = revenue covers all costs
Pg 142

11. Supply = how prices affects the amount of a good businesses produce
What happens when price rises? Why?

12. Command vs. Market
Command Economy: Government decides what goods and services are produced
Market Economy: Private companies and individuals decide what to produce and what to consume (Government ensures fair competition)

13. C. G. Baller, Inc. makes basketballs. Their fixed costs are $3,450
C.G. Baller, Inc. makes basketballs. Their fixed costs are $3,450. Variable costs are $12 per basketball. If the basketball is priced at $25 and 300 basketballs are sold, did C.G. Baller break even? How do you know? [Yes, they do. Sales = $7,500 (300 x $25); Fixed Costs = $3,450; Variable Costs = $3,600 (300 x $12); Profit = $7,500 - $3,450 - $3,600 = $450. Revenue covers all costs]

14. Activity In your notes explain what would likely occur if:
a manager inaccurately projects revenue (overestimates).
a manager sets the price of a product too high.

15. Section 6.1 Assessment
P.143
Answer the following on a SEPARATE piece of paper:
Fact and Idea Review #1-7
NO PARTNERS!!!!!