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Chapter 3- Individual Markets Objective – Students will be able to answer questions regarding supply and demand. © 2001 by Prentice Hall, Inc. •SECTION •1 Equilibrium • When supply = demand, there is equilibrium in the market • Equilibrium creates a single price and quantity for a good/service Market Equilibrium P S p D q Q Shortage and Surplus • If the market price is above equilibrium, the quantity supplied exceeds quantity demanded (surplus), and the price automatically is pushed down to equilibrium. • If the market price is below equilibrium, the quantity demanded exceeds quantity supplied (shortage), and the price automatically is pushed up towards equilibrium. There are four steps in figuring out supply and demand graphs: 1. DON’T OVERTHINK! 2. Which curve is affected and why? 3. Is it an increase or a decrease? 4. JUST DRAW IT! What happens to the market for oranges when there is a frost that hits Florida? S1 P S Decrease in the physical availability of resources. P1 P D Q1 Q Your market is: Oranges Q What happens to the market for downloaded music when the price of an MP3 player or Ipod goes down? P S Decrease in the price of a complement. P1 P D1 D Q Your market is: Q1 Q Downloaded Music What happens to the market for downloaded music when the royalties paid to the song artist goes up? S1 P S Increase in costs. P1 P D Q1 Q Your market is: Q Downloaded Music The U.S. goes through a boom economy, what happens to the market for steak? P S Increase in incomes— Normal goods. P1 P D1 D Q Your market is: Steak Q1 Q The price of milk doubles; what happens to the market for cereal? Section 1 Assessment 1. Graph what happens to the market for Nike shoes after a major advertising campaign. 2. Graph what happens to the market for computers if Hewlett Packard decides to stop producing them. • Summary: In a paragraph, describe what you have learned today.