Prices and Decision
Making
Price as Signals

We have many signals that tell us what to do in life. In economics, price is that signal. It
communicates information and incentives to buyers and sellers.
-High prices tell producers to make more and consumers buy less.
-Low prices tell producers to make less and consumers buy more.
-Price is a link between producers and consumers. (answers What? How? For whom?)
-Prices in a competitive market economy are neutral. Explain why.
-It represents compromises between producer and consumer and what they are both willing to
do.
-Prices in a market economy are flexible. What might affect the price of an item?
-based on events such as natural disasters, buyers and sellers adjust accordingly.
-market economies adjust to these sort of events.

Price flexibility accommodates change. Example: computers over time

Competitive markets get their prices from the market, not committees or
administrators.

Prices make it easy for consumers to decide if they want something.
Allocation Without Prices

Command economies allocate products without prices. Connections
determine who gets products.

Tickets are typically given to communist party members and not the average people

Rationing is also used, particularly during war times; it can lead to problems. Most
people are not satisfied with their share.

Have to pay people to make, manage, and distribute rationing coupons. Some
people will steal or make counterfeit coupons.

Less incentive to work and produce
Price as a System

Economists favor the price system;

How would higher oil prices affect a consumer? Car manufacturing?

Some automakers offered rebates on cars.
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1. Market Equilibrium prices are relatively stable, another
quantity of goods or services supplied is equal to the
quantity demand.
2. Surplus quantity supplied is greater than the quantity
demand.
3. Shortage is a situation in which the quantity demand
is greater than the quantity supply.
4. Equilibrium Price there is neither a surplus nor a
shortage.
Supply and Demand Curve
Inelastic Demand
(q1 = 4; q2 = 5) (p2 = 5; p1 = 10)
Elastic Demand
(q1 = 5; q2 = 10) (p2 = 6; p1 = 7)
Competitive Price Theory

The prices of some foods and them foods themselves may be similar from
one store to another. Varying prices may be that advertisers have
convinced consumers that one item is slightly better than the other;
-Buyers may not be well-informed.
-Why might gasoline at gas stations close to the interstate be more
expensive than other gas stations?

Markets must be reasonably competitive. When sellers compete, they must
lower prices. Buyers must also compete for the items, which prevents
prices from falling too far.

Who runs a market economy?

What? How? And For Whom to produce is decided by participants.
Create a product

Each group will have 20 minutes to create and name a product.

Each group will have to have a detailed description of your product which
will include a picture and a description of its purpose or what it does.

Each group will have to price their product and create a supply schedule
for this product (Price and quantity supplied)

Each group will have to have a sales pitch as far as why we need this
product.
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No group should have more than 4 members.

Each group will present their product and sales pitch to the class.