This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Francisco, California, and the
price of a similar house in a similar neighborhood in Louisville, Kentucky? The house
in San Francisco will sell for approximately
three to four times the price of the house in
Louisville. Why, when it comes to candy bars
and bread, does a good sell for approximately the same price no matter where it is
purchased in the United States, whereas a
house purchased in San Francisco is so
much more expensive than a similar house
in Louisville? Supply and demand give us
the answer. Section 2 Supply and Demand in Everyday Life 141 06 (128-153) EMC Chap 06 Although similar
in style and size,
houses in different
often sell at prices
differing in the hundreds of thousands
of dollars. What
do not differ in
price from location to location?
Why? 11/21/05 3:13 PM Page 142 Let’s imagine for a second that the price
of a candy bar is not the same in Toledo as in
Miami. At a particular point in time the
price for candy bars is $2 in Toledo and $1 in
Miami, because the demand for candy bars
is higher in Toledo. Knowing what you know
now about supply and demand, what do you
think will happen?
Given the price difference, the suppliers of
candy bars will prefer to sell more of their
product in Toledo than in Miami, so the supply of candy bars will increase in Toledo and
decrease in Miami. Then what will happen?
The price of a candy bars will decrease (say,
from $2 to $1.50) in Toledo and increase
(say, from $1 to $1.50) in Miami. Only when
the prices of candy bars are the same in
Toledo and Miami will suppliers no longer
have an incentive to rearrange the supply of
candy bars in the two cities. The same type of
activity would affect the price of bread in
the two cities. When suppliers can shift supply from one location to another, price will
tend to be uniform for products.
Now consider houses in different cities.
Housing prices are much higher in San
Francisco than in Louisville because the difference between demand and supply (more
demand, less supply) in San Francisco is
greater than it is in Louisville. If...
View Full Document
This document was uploaded on 01/16/2014.
- Winter '14