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Economics_Ch06 - 06(128-153 EMC Chap 06 3:13 PM Page 128...

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Why It Matters M arkets and prices are a little like the air you breathe—they are everywhere. Anytime you buy or sell something, you will buy or sell that something at a price, in a market. Supply and demand go together to determine price. What determines the price of the car you buy? Answer: supply and demand. What determines the price that you sell your labor services for? Answer: supply and demand. What determines the price of the house you buy? Answer: supply and demand. We will learn about sup- ply and demand together in this chapter by looking at several examples from every- day life. We will also learn about price, which is the out- come of demand and supply working at the same time. 128 This dealer is an expert in fine-crafted art from all over the world. An important part of his job is to arrive at the right price for each object.
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The following events occurred one day in June. 8:45 A.M. Gordon is online checking the price of a stock he is thinking of buying. Ten minutes ago the price was $43.23. Right now, it is $42.18. Gordon wonders whether he should buy the stock now or wait another 10 minutes, or 20 minutes, or sev- eral hours. What causes the price of a share of stock to drop $1.05 in 10 minutes? 8:47 A.M. Jennifer is driving to work. With so many cars on the road, Jennifer is only moving 15 mph. She is lis- tening to a song on the radio and wondering why traffic is so bad during the morning commute. What does traffic congestion have to do with supply and demand? 2:17 P.M. Malcolm is at home watching a base- ball game on television. The announcer is talking about the player who is currently at bat. The player earns $7 million a year playing baseball. Malcolm wonders why some people earn so much just to play a game. Why do some baseball players earn millions of dollars to play baseball? 8:13 P.M. Alice and Parker are at home watching their favorite television show. Alice says, “You know, I read that the show has really high rat- ings.” “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
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130 Moving to Equilibrium Imagine a pair of scissors. Which blade does the cutting, the top blade or the bot- tom? 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.
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