1 essential question: define the price system, explain how producers and consumers use price to...

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Essential Question: Essential Question: Define the price system, Explain how

producers and consumers use price to communicate, identify 5 benefits and 3 shortcomings of the price system.

The Price SystemThe Price SystemSECTION 1

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What is the price system and what What is the price system and what does it do?does it do? A system that producers/consumers use to

communicate their needs and wants to each other through the prices that they are willing to sell/ willing to pay for products.

The PS communicates the idea that whatever costs (resources) go into production, consumer should ultimately pay for them as they are the ones who benefit from the product.


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How producers use price to How producers use price to communicate. communicate. Through the price of a product producers tell

consumers How much it costs to produce How much it costs to distribute


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How consumers use price to How consumers use price to communicate. communicate. Through the price of a product consumers

tell producers Yes, I want and can afford your product, make

more No, I do not want or cannot afford your product,

make less OR make something else.


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5 Benefits of the price system5 Benefits of the price systemGroup Work:

With your group, use your book and the whiteboard to identify and briefly explain each of the five benefits of the price system.

Then provide a 20-word or less example.


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5 Benefits of the price system5 Benefits of the price systemProvides information-


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5 Benefits of the price system5 Benefits of the price system Provides incentive-


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5 Benefits of the price system5 Benefits of the price systemProvides Choice-


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5 Benefits of the price system5 Benefits of the price system Provides Efficiency-.


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5 Benefits of the price system5 Benefits of the price system Provides Flexibility-


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3 Limitations of the price system 3 Limitations of the price system (also called Market Failures:(also called Market Failures:Externalities-when individuals involved in the

production/consumer relationship benefit or are harmed as a result of the production or consumption

Example, when La Pinata gets additional business from the construction of a new Kaiser (even though they did not pay for this benefit)


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3 Limitations of the price system 3 Limitations of the price system cont.:cont.:Public Goods

When the government creates a service that it requires all citizens to pay for such as national defense or law enforcement.

The issue is that ALL who can pay must pay for a service that benfits those who might not be able to pay for it.


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3 Limitations of the price system:3 Limitations of the price system: Instability

Sometimes events cause the price system to change dramatically and cause consumers and producers to stop consuming/producing

Example: A hurricane causes a spike in demand for generators and prices skyrocket leaving those who need the product unable to afford it


1 essential question: define the price system, explain how producers and consumers use price to...

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