Combining Supply and Demand Laws of Demand Supply
Combining Supply and Demand
Laws of Demand Supply (#1 & 2) • Law of demand is that if the price increases the quantity demanded decreases. • The Law of Supply is that if the price increases the supply increases
Supply and demand schedules and graphs (#3 & 4) • A supply and demand schedule is a table that shows the quantities of a product that will be supplied and demanded at various prices. • A supply and demand curve/graph is an illustration that shows the quantities of a product that will be supplied and demanded at various prices
Equilibrium and Disequilibrium (#5 to 7) • Equilibrium is when the quantity demanded is equal to the quantity supplied • Disequilibrium is when the quantity demanded is not equal to the quantity supplied • Disequilibrium results from a shortage (demand>supply) or a surplus (supply>demand)
If A Price if Too High (#8) • If a price is too high, its above equilibrium there will be a surplus and the seller will have to reduce the price if he wishes to increase demand. • The market always seeks to go to the equilibrium price where the quantity supplied equals the quantity demanded
If a Price is Too Low (#9) • If a price si too low and its below equilibrium, there will be a shortage and the buyers will bid up the price in order to increase the supply. • Again, the market always seeks to go to the equilibrium price where the quantity supplied equals the quantity demanded
Price Floor and Example (#10 to 12) • A price floor is when the government establishes a minimum price that is usually greater than the equilibrium price that the market would set. • An example of a price floor is minimum wage • Minimum Wage always results in unemployment because its above equilibrium which creates a surplus in this case of labor.
Price Ceiling and Example (#13 to 15)) • A price ceiling is when the government establishes a maximum price that is usually lower than the price the market would establish. • An example of a price ceiling is rent control • Rent control always results in a shortage of housing because its below equilibrium which results in a shortage.
Consequences of Rent Control (#16) • Since the price is too low (below equilibrium) there is a shortage of housing. • Because there is a shortage some consumers are always unsatisfied • Since there is excess demand, landlords can exercise bias in discriminating in making a choice as to who gets to rent an apartment • With excess demand landlords do not need to properly maintain the apartment so conditions of rental properties are poor
Changes in Equilibrium (#17) • The following shifts can result in a change in equilibrium • Shift in demand • Shift in supply • Shift in both demand supply
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