Chapter 6 [recovered]

Chapter 6: Prices and Decision Making

6-1: Prices as Signals ,[object Object],[object Object],[object Object],[object Object],[object Object]

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6-2: The Price System at Work ,[object Object],[object Object],[object Object],[object Object]

Surplus – quantity supplied is greater than quantity demanded - Will drive the price down. Items will go on “sale”. Shortage – quantity demanded is greater than quantity supplied - Will drive the price up. Equilibrium price – price where quantity supplied is equal to the quantity demanded Surplus Shortage

Explaining and Predicting Prices ,[object Object],[object Object],Energy Prices Change in Demand

6-3: Social Goals and Market Efficiency ,[object Object],[object Object],Shortage More renters will be able to afford an apartment in the city, driving quantity demanded up. Landlords will try to convert some apartments to other uses with higher returns, driving quantity supplied down. Creates a shortage in the market. Landlords will try to lower costs by providing the absolute minimum upkeep. Prices no longer allocate apartments. Landlords will create long waiting lists and other non-price criteria to discourage applicants such as excluding pets or children.

[object Object],[object Object],[object Object],[object Object],Surplus More people are willing to work at the higher wage, driving quantity supplied up. Employers will be unable to hire as many people at the higher wage, driving demand down. Increases unemployment. Creates a labor surplus in the market. However, it does raise poor people’s incomes and provides a small measure of equity, one of our economic goals. Tradeoff of full employment vs. economic equity.

[object Object],[object Object],Target Price ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Chapter 6 [recovered]

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Chapter 6 [recovered]