Download Equilibrium

Combining Supply & Demand
Balancing the
Market
-Combining the supply
and demand schedules
will create a balance.
-Equilibrium is the point
where supply &
demand meet.
-The market is stable
at the equilibrium price.
-To graph equilibrium
combine the supply
and demand graphs
where they intersect
is the equilibrium price.
Disequilibrium
Price Ceilings
Price Floors
-Occurs when quantity
supplied and quantity
demanded are not
equal.
-Excess demand occurs
when quantity
demanded is more
than the quantity
supplied.
-Excess Supply occurs
When the quantity
Supplied is more than
Quantity demanded.
-a maximum price
that can be legally
charged for a good
or a service.
-these goods are
seen by government
As ‘essential’.
-rent control is an
example of how
government tried
to prevent inflation
in housing
-a minimum price for
a good or service.
-minimum wage is
the minimum price
an employer can
pay a wage worker.
-some commodities
receive a price floor
by state
governments – milk.
Cause: Increased cost
of factors of production
used to make product
[steel or labor in a car]
Cause:
Reduced cost
of production
Cause: Change in
technology
Cause:
Government
taxes product
Effect: Lower price
of consumer
good
Shifts in Supply
Cause: change in
price of a substitute
or complement
producer good
Effect: A larger or
smaller quantity of
consumer good
produced and
consumed
Effect: Higher price
of consumer
good
Cause: Advertisements
create a need
or desire for a
good/service.
Effect: the
equilibrium price
and the equilibrium
quantity increase
Cause: Lower Prices
Increase demand
Shifts in
Demand
Effect: Lack of
enough goods to
Satisfy demand raises
prices & causes
shortages
Effect: When a fad
Passes, excess demand
Turns into excess supply
End of fad restores
Original price
Signals that give
producers and
consumers information
about the
market
Incentives to both
buyer & sellers
System is not flexible
because determined
by government
Price based
System
Flexibility
Rationing of
goods can
occur
Because goal is to
distribute wealth
evenly, no incentives
or signals to buyers
or sellers.
Centrally Planned
System
System is ‘free;’ it
costs nothing
to administer
Great diversity
of goods &
services
Shortages can
occur
Requires large
bureaucracy
to run
Black markets
can arise
Fewer choices
of goods