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TRANSCRIPT
Chapter 6, Section 1
Bell Ringer
In 2016, Walmart reported $482 billion in revenue.
However, Walmart makes a profit of only 3-6 cents for every dollar of revenue.
Work with your desk partner to create a list of possible answers to the question…
Where does the rest of the money go??
Chapter 6, Section 1
Objectives
1. Analyze the various production costs of a firm.
2. Identify the difference between fixed and variable costs.
Chapter 6, Section 1
Introduction
When thinking about how to maximize profits, firms think about the cost involved in producing additional units of a good.
Costs producers take into consideration are:
–Fixed costs
–Variable costs
Chapter 6, Section 1
Fixed Costs
Fixed costs don’t change with the quantity supplied.
They include:– Property taxes
– Rent
– Machinery repair
– Salaried labor
– Insurance
Chapter 6, Section 1
Variable Costs
Variable costs increase as quantity produced increases.
They include:
– Electricity and heating bills
– Price of raw materials
– Hourly or commission labor
– Transportation
Chapter 6, Section 1
Business Costs
Working with an elbow partner, list 10 business costs for Starbucks Coffee.
–For each cost, identify if it is “F”ixed or “V”ariable
Bell Ringer
What time of the year is price the highest?
What time of the year is price the lowest?
Bathing suit
Turkey
Bicycle
Backpack
Chapter 6, Section 1
Objectives
1. Explain how supply and demand create equilibrium in the marketplace.
2. Describe what happens to prices when equilibrium is disturbed.
Chapter 6, Section 1
What is Equilibrium?
Equilibrium the point at which the
demand for a good or service is equal to the supply
• When a market reaches equilibrium, it is stable.
Chapter 6, Section 1
A “Moving Target”
Equilibrium for most products is in
constant motion.
Think of equilibrium as a
“moving target” that changes
as market conditions change.
As supply or demand increases or
decreases, a new equilibrium is
created for that product.
Chapter 6, Section 1
Disequilibrium
If the market price or quantity supplied is anywhere but at equilibrium, the market is said to be at disequilibrium.
Disequilibrium can produce two possible outcomes:–Shortage— Demand for a good is greater than
supply. Prices rise.
–Surplus— Supply for a good is greater than demand. Prices drop.
Chapter 6, Section 1
Shortage: If D>S, then P ↑
Surplus: If S>D, then P ↓
Chapter 6, Section 1
Shortages
Shortages cause a firm to raise its prices.
Higher prices cause the quantity supplied to rise.
High prices cause the quantity demanded to fall.
EQUILIBRIUM !
Surpluses
Surpluses cause a firm to drop its prices.
Lower prices cause the quantity supplied to fall.
Low prices cause the quantity demanded to rise.
EQUILIBRIUM !
Chapter 6, Section 1
Equilibrium Cartoon
Working by yourself or with a partner, create a three to five panel comic strip that illustrates how extreme demand for a good (like fidget spinners) returns from a shortage to equilibrium.
Chapter 6, Section 1
Key Terms
equilibrium: the point at which the demand for a product or service is equal to the supply of that product or service
disequilibrium: any price or quantity not at equilibrium
shortage: when quantity demanded is more than quantity supplied
surplus: when quantity supplied is more than quantity demanded
Chapter 6, Section 1
Objectives
1. Identify the many roles that prices play in a free market.
2. Describe the role of the “black market” in the global economy.
Chapter 6, Section 1
Introduction
What roles do prices play in a market-based economy?– In a market economy, prices are used to distribute
goods and resources throughout the economy.
– Prices play other roles, including:
Serving as a language for buyers and sellers
Serving as an incentive for producers
Serving as a signal of economic conditions
Chapter 6, Section 1
The Role of Prices
Prices provide a standard of measure of valuethroughout the world (i.e., a universal language).
Prices act as a signal that tells producers and consumers how to adjust.
Chapter 6, Section 1
The Role of Prices
Prices tell buyers and sellers whether goods are in short supply or readily available.
BP gas station, immediately following Hurricane Katrina, 2005
On what date was this picture taken?
Chapter 6, Section 1
The Role of Prices
The price system is flexible and free, which allows for a wide diversity of goods and services.
Chapter 6, Section 1
The Black Market
Economic activity that takes place outside of government intervention occurs on the black market.
This is usually to bypass price controls, taxes, or laws.
Choco Pies in North Korea: https://www.youtube.com/watch?v=UfxOTEqVVaQ
Chapter 6, Section 1
“System D”
System D is a new term being used by some economists to describe the black market.
This term comes from the French word, débrouillard, which translates to “resourceful.”
It is estimated that over $10 trillion of economic activity occurs on the global black market every year.