Alice says you know i read that the show has really

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Unformatted text preview: Alice says, “You know, I read that the show has really high ratings.” “Good,” says Parker, “that means it won’t be canceled any time soon. • How are TV ratings like the economic concept of price? 9:05 P.M. After she hears a knock at her door, Evelyn walks to the door and opens it. It’s the pizza delivery guy. He takes a large pizza out of the hot case and says that she owes him $15.75. She gives him a $20 bill. After she receives her change, she gives the pizza delivery guy a $3 tip. • Why was the price of the pizza $15.75? Why wasn’t it $12 or $18? 129 06 (128-153) EMC Chap 06 12/5/05 2:31 PM Page 130 Focus Questions How do supply and demand together determine price? What happens to price when the market has a surplus? What happens to price when the market has a shortage? Supply and Demand Together Key Terms surplus shortage equilibrium equilibrium quantity equilibrium price inventory price ceiling price floor Moving to Equilibrium surplus The condition in which the quantity supplied of a good is greater than the quantity demanded. Surpluses occur only at prices above equilibrium price. Imagine a pair of scissors. Which blade does the cutting, the top blade or the bottom? It’s impossible to say, isn’t it? In much the same way, it is impossible to say whether demand or supply is responsible for the prices we pay for goods and services. The fact is, supply and demand work together to determine price. To understand exactly how supply and demand work together, imagine that you are at an auction where 40,000 bushels of corn are being sold. All of the potential buyers of corn are sitting in front of computers. At any given price, the buyers simply key in the number of bushels they want to buy. The auction begins with the auctioneer calling out a price of $6. (Follow along in Exhibit 6-1 on the next page as you read about what is happening at the auction.) • At $6 a bushel, the potential buyers think for a second, and then they all enter into their computers the number of bushels they...
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This document was uploaded on 01/16/2014.

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