QUANTITY DEMANDED AND QUANTITY SUPPLIED QUANTITY DEMANDED THE

QUANTITY DEMANDED AND QUANTITY SUPPLIED

QUANTITY DEMANDED • THE QUANTITY DEMANDED IS A SPECIFIC AMOUNT AT A PARTICULAR PRICE.

• A CHANGE IN QUANTITY DEMANDED IS CAUSED BY A CHANGE IN THE PRICE OF A GOOD/SERVICE AND IS ILLUSTRATED ON A GRAPH AS A MOVEMENT ALONG THE DEMAND CURVE. • DEMAND IS A RELATIONSHIP THAT SHOWS THE QUANTITY DEMANDED AT EACH PRICE.

QUANTITY SUPPLIED • THE QUANTITY SUPPLIED IS A SPECIFIC AMOUNT AT A PARTICULAR PRICE.

• A CHANGE IN QUANTITY SUPPLIED IS CAUSED BY A CHANGE IN THE PRICE OF A GOOD/SERVICE AND IS ILLUSTRATED ON A GRAPH AS A MOVEMENT ALONG THE SUPPLY CURVE. • SUPPLY IS A RELATIONSHIP THAT SHOWS THE QUANTITY SUPPLIED AT EACH PRICE.

PRICE CEILINGS AND PRICE FLOORS

PRICE CEILINGS • PRICE CEILINGS AND FLOORS: WHEN THE GOVERNMENT INTERVENES IN A MARKET TO PREVENT THE LAWS OF SUPPLY AND DEMAND FROM DETERMINING PRICE

PRICE CEILINGS • WHAT ARE PRICE CEILINGS? A PRICE CEILING IS A LEGALLY ESTABLISHED MAXIMUM PRICE; THE HIGHEST PRICE THAT CAN BE CHARGED FOR A PARTICULAR GOOD OR SERVICE • WHERE DO THEY COME FROM? GOVERNMENTS ENACT PRICE CEILINGS WHEN THEY FEAR THAT THE PRICE MIGHT BE HIGHER THAN THEY DESIRE IT TO BE.

• EXAMPLE OF A PRICE CEILING: • RENT-CONTROL LAWS --THESE LAWS LIMIT THE INCREASE IN RENTS FROM YEAR TO YEAR

• WHAT HAPPENS WHEN A PRICE CEILING IS LOWER THAN THE MARKET (EQUILIBRIUM) PRICE? THE QUANTITY DEMANDED IN THE MARKET (WHICH IS ENCOURAGED BY THE LOWER PRICE) EXCEEDS QUANTITY SUPPLIED…ALSO KNOWN AS A SHORTAGE.

• UNINTENDED CONSEQUENCE OF PRICE CEILINGS: • PRICE CEILINGS CREATE A SITUATION IN WHICH SOME OF THOSE WHO DEMAND THE GOOD WON'T BE ABLE TO BUY IT AT ALL

PRICE FLOORS • WHAT ARE PRICE FLOORS? A LEGALLY ESTABLISHED MINIMUM PRICE; THE LOWEST PRICE THAT CAN BE CHARGED FOR A PARTICULAR GOOD OR SERVICE • WHERE DOES IT COME FROM? GOVERNMENTS ENACT PRICE FLOORS WHEN THEY FEAR THAT THE PRICE MIGHT BE LOWER THAN THEY DESIRE IT TO BE.

• EXAMPLE OF A PRICE FLOOR: • THE MINIMUM WAGE

WHAT HAPPENS WHEN A PRICE FLOOR IS HIGHER THAN THE MARKET (EQUILIBRIUM) PRICE? THE QUANTITY SUPPLIED IN THE MARKET (WHICH IS ENCOURAGED BY THE HIGHER PRICE) EXCEEDS QUANTITY DEMANDED…ALSO KNOWN AS A SURPLUS.