Price
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A price is what people pay when they buy a good or service and what they receive when they sell a good or service. Most prices in market economies are determined by the interactions of sellers (supply) and buyers (demand) in markets. The market price reflects how scarce a good or service is compared to other goods and services. Market prices change constantly as supply and demand change.
Price acts as an important guide to both producers (sellers) and consumers (buyers). At higher prices, consumers have an incentive to purchase less, while producers have an incentive to produce more. At lower prices, consumers will purchase more, but producers have an incentive to produce less.
People commonly use the term “cost” to refer to the price of a good or service. (How much does the book cost?) However, in economics, cost typically refers to “costs of production.”
Governments often interfere with the natural determination of prices in markets, setting government-enforced price controls. Examples are agricultural price supports, minimum wage laws, and interest rate limits. These controls often result in shortages and surpluses.
Teaching Tips
Understanding
As a class, brainstorm or identify a specific list of various goods and services. Then work in small groups to estimate the “market price” of these items. Compare estimated prices. How accurate were the students?
Applying
Assume your students are operating a lemonade stand. Identify different scenarios that would result in an increase or decrease in demand for the lemonade (location of stand, weather, competition, etc.). Do the same activity for other “student” businesses, such as babysitting, lawn mowing, or pet sitting.
Invite a human resources person from a local company to come and discuss jobs and wages.
Analyzing
Discuss why the “market price” of the same good, such as milk, varies from store to store. (It is costly for consumers to get information about the best price, as well as “driving all over town” to get the best price. Consumers are often willing to pay more if it means driving less.)
Track the price of gasoline at particular gas stations. Make a chart illustrating the different prices at different stations. Discuss (a) why the price changes, (b) why the price varies at different stations, and (c) why the price is the same at certain stations.
Creating
Draw or cut out pictures of people doing various jobs. Research and label the wage/salary for these jobs. Make a bulletin board entitled, “The Price of Labor Is Different for Different Jobs.” Discuss why wages differ.