Download Topic 1.2.6 What determines the price

1.2.6 Unit content
Students should be able to:
• Describe equilibrium price and quantity and explain
how they are determined
• Use supply and demand diagrams to depict excess
supply and excess demand
• Show that shifts in demand and supply curves will
change equilibrium
• Analyse how market forces eliminates excess demand
and excess supply
• Use supply and demand diagrams to show how shifts
in demand and supply curves cause the equilibrium
price and quantity to change in real-world situations
Markets
Bringing buyers (demanders) and sellers
(suppliers) together creates a ________
Markets do not require buyers and sellers
to physically meet (e.g. internet selling).
Their purpose is to set a _______ that is
acceptable to both buyers and sellers.
Demand and supply
In order to analyse how a market works we
need to look at demand and supply curves
on the same diagram.
The demand curve slopes ____________,
indicating that more will be purchased as
price falls, while the supply curve slopes
_____________, indicating that more
sellers enter the market as prices rise.
Draw a demand and supply curve on the
same graph.
Market equilibrium
The price system should produce
equilibrium where demand and supply are
_______ and there is no immediate
tendency for the markets to change.
Where does this occur in your graph?
It is expected that markets will reach
market equilibrium.
So, what happens at market equilibrium?
Colouring in and disequilibrium
Plot a demand and supply curve and then
mark on a high price – above equilibrium.
What do you notice (explain your graph)?
Disequilibrium START
When a market is not in equilibrium
(disequilibrium), then there will probably be
a reaction by buyers or sellers.
At a high price, the supply ____________
demand B and suppliers will not be able to
sell all they have produced at this price.
This is known as _______ supply as supply
exceeds demand and if suppliers want to
sell the product then they will have to
________ the price.
More colouring in: excess diagram!
Draw a diagram to show excess demand.
Comment on your diagram.
Movement or shift recap?
Draw a demand and supply curve.
What will cause a movement along the
curves?
What will cause a curve to shift?
Question
Plot a demand and supply curve and mark
on the equilibrium price and quantity
Assume individual incomes have risen so,
at the same market price, they can afford to
buy more. What impact will this have?
Plot the new equilibrium and explain your
graph.
Derived demand
Changes in the conditions of supply or
demand will create a temporary
disequilibrium situation that may affect
other markets.
If the demand for central heating increases
(a consumer goods market) then the
demand for __________________ will also
increase (a factor of production). This is an
example of derived demand.
Complementary demand
An associated market to housing is the
market for _____________ and a fall
in the demand for houses is likely to
lead to a fall in the demand for
______________. This is an example
of complementary demand.
Demand and supply question
Price
Demand
Supply
1
900
500
2
800
600
3
700
700
4
600
800
5
500
900
Plot this, where is equilibrium?
Equilibrium occurs at _____ units and the
equilibrium price is _____