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Brief Response:Use the Image, p. 128
• Given other factors, is it worth producing….. explain
• 110 units?– Yes, – Marginal product is still high, total profit is high.
• 145 units?– Maybe, – Marginal is negative; profit is falling, but still
possible.
Section 1 p. Terms:
• Price• 137 the monetary value of a product as established
by supply and demand – Communicate information to buyers and sellers– Provide incentive to buyers and sellers
• What kind of economy uses supply and demand to set price?– Free-market (free-enterprise, market-economy)
Rationing
• 139 a system where an agency, most likely the government, decides how much each person is entitled to – Fair share
• Ration coupon• A ticket prescribing how much a person’s
ration is and when they can have it.
Rebate
• 140 a partial refund of the original price of a product.
• Usually from the maker• Consumer must mail in a certificate with a
receipt
Section 2 Terms:
• Economic model• 143 a set of assumptions that can be – listed in a table– Illustrated with a graph– Stated algebraically
• Helps to– Analyze behavior– Analyze outcome
Market equilibrium
• 143 when prices are – relatively stable– Goods/services supplied equally to demand
– EC: Is the US at a reasonable market equilibrium? Explain – Yes.
• Prices are stable. • Employment is returning to it’s pre-recession point (meaning
business has work); 4%
– Goods are services are being sold (clearing the market) and new goods and services are being produced.
Equilibrium price
• 145 the price where there is neither a surplus or a shortage at the end of a trading period.
• “clears the market”
Section 3, Terms:
• Price ceiling• 151 a maximum legal price that can be
charged for a product• Done for a social goal to help lower and fixed
income people– Rent control
Minimum wage
• 152 The lowest legal wage that can be paid to most workers
• Price floor• 152 The lowest legal price that can be paid for
a good or service• Reminder: minimum wage is a price floor;
helps people by insuring income they can make a basic living.
Target price
• 153 A price floor for farm products• Government will help farmers two ways– Target prices– Loan supports
Nonrecourse loan
• 153 a loan that carries neither a penalty nor further obligation to repay if not paid back
• A farmer could get at least the target price for his/her crops– Given to farmers by the CCC (Commodity Credit
Corporation) of the US Government in the 1930s.– Involved the farmer
• Borrowing money at the target price• Pledging his/her crops as security (collateral) in return
– Farmer sold crops and kept any profits, paying back loan– Or farmer kept money from loan, paid government with crops
Deficiency payment
• 153 a check sent to producers that makes up for the difference in the actual market price and the target price– If the target price is higher than the market price
Assessment, CH 6, S1
• 1• Consumers weigh the price against their need• Consumers will purchase – less at a high price– More at a low price
CH 6, S1
• 3• High prices– Producers produce more– Consumers buy less
• Low prices:– Producers produce less– Consumers buy more
CH 6, S1
• 5• Unfair system of allocation• High cost of administering the system• Employees/producers will want to work less
CH 6, S2
• 5• The more elastic, the smaller the price change• The less elastic, the larger the price change
CH 6, S3
• 3• Shortages result if – Prices are set below equilibrium
• Surpluses result if – Prices are set above equilibrium
LA and drought (7)(use your paper if there’s room)
• In your opinion, is the price of water in Los Angeles high or low? (water is a public utility)• The price of water is low, that way all people can afford
water.• Why do you think that is?• What will raising water prices cause during the drought?
(think what you were taught about price equilibrium)• What users are targeted on the proposed chart? Explain.• What users are protected on the proposed chart?
Explain.
LA and drought (7)(use your paper if there’s room)
• In your opinion, is the price of water in Los Angeles high or low? (water is a public utility)– The price of water is low, most people can afford water
• Why do you think that is?– Prices are kept low so lower income people can afford access to the utility
(water is a daily necessity).• What will raising water prices cause during the drought? (think what
you were taught about price equilibrium)– People will use less water (they will be forced to use less)
• What users are targeted on the proposed chart? Explain.– Big users (probably businesses), they use the most water.
• What users are protected on the proposed chart? Explain.– Small users, They use little water, mostly for necessities (survival)
CH 6, S3
• 4• Loan supports allow farmers to borrow against
crops.• Deficiency payments supply farmers with
checks for the difference between the target price and the actual price.
CH 6, S3
• 5• The significant movement of prices, signals
the collective decisions– Whether up or down
Image, p. 138
• Questions• Tokyo, Japan• Answer should reflect knowledge of price
allocation:– Access/resources/supply– Market/demand– Production– Currency values
Image, p. 143
• Question• $15• + so how is the equilibrium point identified on
the • Schedule?– Surplus/shortage = 0
• Curve?– Supply and demand curves intersect
Images, p. 145
• Question• No one is sure what the equilibrium price for a
new product will be– They estimate on the first day,– Then adjust the price
Images, p. 146• Question• It shows a smaller range of price fluctuations• The curve tends to be more horizontal• + in the left example, why might demand be
inelastic?– There are no substitutes– The purchase cannot be delayed
• + in the right example, why might demand be elastic?– There are substitutes– The purchase can be delayed
Other price motivations….. Handout.
• Why is his product so expensive? (5)
• How does he keep his costs down?
• What does he do when nobody buys his lemonade product?
• Who has the role of the government in this cartoon? Why do you say that?
Other price motivations…..
• Why is his product so expensive? (5)– Pay stockholders their dividends– Pay executives their exorbitant salaries and benefits– Pay the workers their wages and benefits– Overhead– Production costs
• How does he keep his costs down?– Using the cheapest methods
• What does he do when nobody buys his lemonade product?– Demands a subsidy from the government
• Who has the role of the government in this cartoon?– His mother– He asks her for a subsidy
• Question• Bad news– War– Disaster– Possible recession
• Should the price of gold be high, presently? Explain.– Current price of gold, 11/5:– $1395/oz.
• US and global recession
Images, p. 147
Image, p. 153
• Question• Problems regarding– Fairness– High administrative costs– Diminished incentives to work and produce– Large surpluses
• Question• Loan program:– Farmer received $40,000 as a loan at the
beginning of the season• Deficiency payment program:– Farmer received $40,000 from selling crops and a
payment to make up the difference.
Image, p. 154