Warm Up: 4 May 2011 What is a fair price for a cheeseburger ? -1/4 lb. -Not fast food! How do you know this is a fair price? Explain…

Warm Up: 4 May 2011

What is a fair price for a cheeseburger?

-1/4 lb.-Not fast food!

How do you know this is a fair price? Explain…

ShortageA shortage causes buyers to compete more intensely for the amount available. It is how much more of a product buyers want to buy than sellers want to sell at a given price.

SurplusHow much more of a product sellers want to sell than buyers want to buy at a given price. Selling begins with competing more intensely against one another for consumers’ money.

Market Clearing Price or Equilibrium Price

This is the price that balances the amount buyers want to buy with the amount the sellers want to sell. This is the only price that balances or “clears” the market.This is the price that people usually end up having to pay.

Market Clearing Price (MCP): Where supply and demand curves intersect.

Surplus: Anything above the equilibrium price.

Shortage: Anything below the equilibrium price.

Based on the graph…What is Market Clearing Price?What price would be a surplus?What price would there be a shortage

Surplus, Shortage or Market Clearing Price?

A Lady Gaga concert will take place in six months. Tickets are $120. The concert has been sold out for a month. People are trying to sell tickets on Ebay. Some tickets are selling for almost $500.

_______________________________________The Steelers are selling tickets for $50

seat/per game. You can buy a ticket on the day of the game without having to wait in a line. Of the 60,000 seats in the stadium, only 20,000 seats are sold.

_______________________________________

Surplus, Shortage or Market Clearing Price?

Coca-cola has been selling at $3.00 per 12-pack for the past eight months at the Giant Eagle. You can buy a 12-pack anytime you enter the store, and the store never runs out before the next shipment to the supplier.

_____________________________________

Figure out whether the price will result in a surplus or

shortage?Surplus or Shortage?

1. $552. $203. $454. $905. What is the Market

Clearing Price/Equilibrium Price?

Prices send signals

Market price acts like a traffic officer“Go” to a seller means that the price is high and they should increase production“Stop” to a seller means that the price is low and they should decrease production

“Go” to a buyer means the price is low and they should buy more of the product“Stop” to a buyer means the price is high and they should buy less of the product

RationingRationing is the distribution or allocation of a product. Depending on surplus or shortage, rationing differs greatly.If there is a shortage, people are willing to pay more for something.One way of deciding who gets what is through an auction.

Prices that MotivateBesides rationing, prices perform necessary tasks.They provide incentives to produce goods and services.Some see shortages/surplus’ as an opportunity to make $$$$$$$$$$$.

Updated statisticsAs of 2009, the United States consumes 18.8 million barrels per day. http://www.indexmundi.com/energy.aspx

The same year the United States produced 5.3 million barrels per day.http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A

Changes in Prices and Production

As the economy goes through surplus and shortages, different companies rise and fall. For instance, in 1950’s the biggest companies included car, steel and manufacturing. In the 2000’s the biggest companies are retail, computers and telecommunications. Companies change with the times/economy

Successful CompaniesInnovation leading to greater efficiency, thus reducing marginal costs and allowing the company to maintain and sometimes increase their profits.

http://www.global100.org/

HomeworkRead all of chapter 5Study guide pages 35, 37-38