How do prices act as signals for consumers and

producers?

Go Ahead…Take A Guess!!

Prices convey information to both. What do high and low prices tell

each? Prices help answer the (3)

economic questions

What do prices do?

1. They don’t favor either party –

they result because of competition Why can’t Chicken Run charge

$500 for chicken fingers?

IMPORTANT INFORMATION ABOUT PRICES

2. They are flexible – allows for

change

Disasters, weather, war effect price and people adjust

This is most often seen with products with which type of demand?

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3. They provide choice – if they

become too high, people can go elsewhere

Don’t have anything for here either

4. Markets find their prices without

outside help Government does get involved

as we will see

Thought I had something for here…but I don’t

5. Prices are efficient – people can

make decisions about purchases and behavior quickly

Example: Hong Kong tolls

Here’s number 5

What system could be used to

allocate resources without prices?

What are the problems with this system?

Review

Draw a supply curve and demand

curve on the same graph. Label everything. Find a point on the graph that

represents the price and quantity that should be charged.

Label that point “E”.

So how do we get to a price?

What is point E called?

What happens if price falls above

this point? What happens if price falls below

this point? How do shifts in Demand and

Supply effect quantity and price?

The big questions:

This price leaves me too many - SURPLUS

This price leaves me too few - SHORTAGE

This one is just right!