Price Supply and Demand Together Finding Market Equilibrium

Price: Supply and Demand Together

Finding Market Equilibrium n Supply and Demand work together to determine price. n Surplus: The condition in which the quantity supplied of a good is greater than the quantity demanded. n Surpluses occur only at prices above equilibrium n Ex: There are 40, 000 Ipods. At $400 per Ipod, buyers only purchase 30, 000. This leaves a surplus of 10, 000 Ipods. n

Finding Market Equilibrium

Finding Market Equilibrium n Shortage: The condition in which the quantity demanded of a good is greater than the quantity supplied. n Shortages only occur at prices below equilibrium price. n n Ex: There are 40, 000 Ipods. The price of the Ipods is $200. Buyers want to purchase 60, 000. There is a shortage of 20, 000

Finding Market Equilibrium

Finding Market Equilibrium n Equilibrium: In a market the point at which the quantity of a good that buyers are willing and able to buy is equal to the quantity that sellers are willing and able to produce and offer for sale. n Quantity demanded=quantity supplied n n Ex: There are 40, 000 Ipods. At $320, buyers purchase 40, 000 Ipods.

Finding Market Equilibrium

Finding Market Equilibrium n The quantity of a good bought and sold in a market that is in equilibrium. n Equilibrium n Quantity: Price: The price at which a good is bought and sold in a market that is in equilibrium.

Finding Market Equilibrium n Qs>Qd Surplus n Qd>Qs Shortage n Qd=Qs Equilibrium

Why Does Price Fall When a Surplus Occurs? n Inventories: n The stock of goods that a business or store has on hand n When a surplus occurs, the suppliers inventories grow beyond normal amounts. n Storing extra goods can be costly, so price decreases

Why Does Price Rise When There is a Shortage? n If a situation occurs where there are more buyers then sellers, some buyers will offer more money to sellers to make sure they get the good over another buyer. n This creates competition for a good

What Causes Equilibrium Price to Change? Demand Supply Equilibrium Price Quantity + + + - - - + - + + ? + - - ? - + - ? n n n Change in Supply Change in Demand Change in Supply and Demand

What Causes Equilibrium Price to Change? n Keeping market equilibrium is important because it keeps buyer and sellers happy. n What would like be like without market equilibrium if you were a buyer? seller?

What Causes Equilibrium Price to Change? n Why is the price of a new video game systems (PS 3) or Elmo dolls cost so much around Christmas time and then price falls after a few months?

Price Controls n Price Ceiling: A legislated price n Set lower than the equilibrium price n Cannot legally buy or sell above the price n n Usually imposed by the government to keep prices more affordable to buyers

Price Controls n Price Floor: A legislated price n Set above the equilibrium price n Cannot legally buy or sell below the price n n Usually imposed by the government to help producers make more money

Manipulating Supply and Demand Graphs n Partner up with someone next to you and draw a supply and demand graph on a piece of paper. n Teacher ask students to demonstrate and conclude different results from supply and demand graphs. Draw results on whiteboard.