Combining Supply and Demand Supply and Demand When
Combining Supply and Demand
Supply and Demand When you overlap the Supply and Demand curves you will see that they cross. At that point, the market is stable. It is called equilibrium.
Supply and Demand If you produce at any point above Equilibrium there will be a surplus in The market. Anything below will be a shortage.
Controls on Prices • Are usually enacted when policymakers believe the market price is unfair to buyers or sellers. • Price Ceiling A legal maximum on the price at which a good can be sold. Example: Rent Control • Price Floor A legal minimum on the price at which a good can be sold. Example: Minimum Wage
How Price Ceilings Affect Market Outcomes • Two outcomes are possible when the government imposes a price ceiling: 1. The price ceiling is NOT binding if it is set above the equilibrium price. 2. The price ceiling IS binding if it is set below the equilibrium price, leading to a shortage.
A market with a non- binding Price Ceiling
A market with a binding Price Ceiling
How Price Floors Affect Market Outcomes • When the government imposes a price floor, two outcomes are possible. 1. The price floor is NOT binding if set below the equilibrium price. 2. The price floor IS binding if set above the equilibrium price, leading to a surplus.
A market with a non-binding Price Floor
A market with a binding Price Floor
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