Bell Ringer. Where does the rest of the money go??

Transcription

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??

2 Objectives 1. Analyze the various production costs of a firm. 2. Identify the difference between fixed and variable costs.

3 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

4 Fixed Costs Fixed costs don t change with the quantity supplied. They include: Property taxes Rent Machinery repair Salaried labor Insurance

5 Variable Costs Variable costs increase as quantity produced increases. They include: Electricity and heating bills Price of raw materials Hourly or commission labor Transportation

6 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

7 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

8 Objectives 1. Explain how supply and demand create equilibrium in the marketplace. 2. Describe what happens to prices when equilibrium is disturbed.

9 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.

10 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.

11 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.

12 Shortage: If D>S, then P Surplus: If S>D, then P

13 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. 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! EQUILIBRIUM!

14 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.

15 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

16 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.

17 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

18 The Role of Prices Prices provide a standard of measure of value throughout the world (i.e., a universal language). Prices act as a signal that tells producers and consumers how to adjust.

19 The Role of Prices Prices tell buyers and sellers whether goods are in short supply or readily available. On what date was this picture taken? BP gas station, immediately following Hurricane Katrina, 2005

20 The Role of Prices The price system is flexible and free, which allows for a wide diversity of goods and services.

21 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: h?v=ufxoteqvvaq

22 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.