Download Supply & Demand Working Together 21-4

Supply & Demand Working
Together
21-4
Demand Curve
Supply Curve
Supply and Demand at Work
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What is a market?
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Any place or mechanism where g/s are
exchanged between buyers & sellers
The forces of supply and demand work
together in markets to set prices.
The Price Adjustment Process
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Why are supply & demand curves combined?
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To see how they work together to set prices
Remember, in a market economy like ours, prices rise & fall according to
what the consumer is willing to pay. This is VERY different in a command
economy where the GOVT. determines ALL prices!
What color is the demand curve? blue
What color is the supply curve? red

When you see these curves on the test, they WILL NOT be in
color!
Surplus: Too much of a product
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At $40, suppliers will put 225 video games on the shelf, but
consumers will only buy 150 at that price.
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What is a surplus?
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Anytime you have extra products that didn’t get sold
When the # of units supplied (by the producer) is higher than the
quantity demanded (by the consumer)
What does a surplus signal?
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How many are left over that won’t get sold? 75
(225-150=75)
The price is too high
As a result, what will the seller do?
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Lower the price
Shortage: selling out of a product
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At $20, suppliers will put 105 video games on the shelf, but
consumers want to buy 230 at that price (b/c that’s a good price!).
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What is a shortage?
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When the # of units demanded (by the consumer) is higher than the
quantity supplied (by the producer)
What does a shortage signal?
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How many more video games are needed to meet the consumers’
demands? 125
(230-105= 125)
The price is too low.
As a result, what will the seller do?
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Raise the price
This usually doesn’t happen immediately, though. Customers
would be very upset to have the pay a higher price for the
SAME product that ran out.
Market Forces
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What is the equilibrium price?
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The perfect PRICE where there is no surplus & no shortage!
In other words, supply = demand
Using the graph on p.589, the equilibrium price is $30.
At this price, there is neither a shortage or a surplus (because
consumers will demand the same number of video games that
producers are willing to supply).
Therefore the two quantities are EQUAL  equilibrium price!
It’s where the two curves intersect!
Price Controls
Even though we don’t live in a command economy where the
govt. sets prices, the govt. does interfere with prices ONLY to
protect the consumer.
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Why might the government set the price for a product?
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Some prices are unfair, so the govt. will step in to make sure
consumers aren’t being taken advantage of.
What is a price ceiling?
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When the govt. sets a maximum price for a g/s
price “ceiling” = maximum (get it??)
maximum
Example:
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Price Ceiling
Rent for an apartment (the govt. might say that a one bedroom apt. can
not be rented for more than $800…again, this protects the consumer! )
What is a price floor?
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When the govt. sets a minimum price for a g/s
price “floor” = minimum (get it??)
Example:
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Price Floor
Wages that a worker gets paid (the govt. creates a “minimum wage” law
that says that each worker must be paid at least that amount…this
protects the worker! )
Now, go back to the combined
supply curve & demand curve
that we drew together yesterday.
You learned 3 vocab. words from
this worksheet
that you need to add to YOUR
graph.
All of these will be shown on the curves:
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Equilibrium Price
Surplus
Shortage
Equilibrium Price
The price at which
quantity demanded = quantity supplied
Demand Curve
Supply Curve
Price
Surplus:
goods left over
Demand Curve
Notice: It’s above the
EQP.
Surplus
Supply Curve
Shortage:
goods sold out!
Demand Curve
Supply Curve
Shortage
Notice: It’s below the
EQP
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Now, let’s see how all of these can be
seen on the schedules:
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Equilibrium Price
Surplus
Shortage
Looking at a schedule.
Price
$50
Q
demanded
Q
supplied
100
275
Will have leftovers
$40
150
Notice: It’s located
above the EQP.
Surplus
225
Will have leftovers
Equilibrium
Price
$30
180
180
b/c
$20
230
105
quantities
are equal
Won’t have enough
$10
300
55
Won’t have enough
$5
400
30
Won’t have enough
Shortage
Notice: It’s located
below the EQP.
Now, can you do it by yourself?
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Can you point to
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the demand curve?
the supply curve?
The equilibrium price?
the surplus?
the shortage?
Do you need to hit the backspace button to
review first?
A. Point to the demand curve
B. Point to the supply curve.
C. Point to the equilibrium price.
D. Point to the surplus.
E. Point to the shortage.
Demand Curve
Supply Curve
surplus
EqP
shortage
Try this:
Call Ms. Meadows
over when you
think you have all
3 answers!
a. What is the equilibrium price?
b. Where is the surplus?
c. Where is the shortage?
Price
Q
demanded
Q
supplied
$50
100
275
$40
150
150
$30
180
130
$20
230
90
$10
300
50
$5
400
35
A. Point to the demand curve
B. Point to the supply curve.
C. Point to the equilibrium price.
D. Point to the surplus.
E. Point to the shortage.
And this:
Study! Study! Study!