Download The Price System (Markets)

Economics Unit 4, Lesson 1
The Price System
(Markets)
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Potential Buyers
Potential Sellers
Markets
The interaction of buyers and sellers
determines the price and quantity of
most goods in a market system.
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Buyers and sellers have
opposite goals.
Buyers want the lowest price.
Sellers want the highest price.
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Markets
Draw Supply & Demand
Demand Schedule
$
QD
10.00
60
20.00
40
30.00
20
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Supply Schedule
$
QS
10.00
20
20.00
40
30.00
60
Market
$ 30
S
EP 20
10
D
20
©2012, TESCCC
40
EQ
60
Q
With supply and demand both
on graph, we now have a
market.
Market equilibrium – where
quantity demanded and quantity
supplied are equal
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Based on 2 Assumptions
1. Everything in market has a price.
2. Price is best measure to answer
the three basic economic
questions.
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Prices act as signals.
Signals to adjust
– Demand
– Supply
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Disequilibrium
QS = QD
This creates a shortage or a
surplus.
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Surplus
• A price above equilibrium creates a
surplus.
• A surplus is when QS is greater
than QD.
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Surplus
Excess Supply
QS > QD
P
S
30
EP 20
D
QD
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40
EQ
Q
QS
Shortage
• A price below equilibrium created a
shortage.
• Shortage is when QD is greater than QS.
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Shortage
Excess Demand
$
QD > QS
S
EP20
10
D
QS
©2012, TESCCC
40
EQ
QD
Q