Download lecture-14-supply-demand

Supply & Demand
Today’s Objective
 Students will learn how supply and demand
interacts together and how to manipulate
this information on graphs.
 Essential Learning: How do changes in
supply and demand affect the equilibrium
point and the setting of prices?
Now it is time to watch a video
clip on Supply & Demand!!!
 Click on the link below:
 http://www.brainpop.com/socialstudies/econ
omics/supplyanddemand/
Moving to Equilibrium
Supply & • Work together to determine price.
Demand
•
A market is considered to be in
equilibrium when the quantity of a
good that buyers are willing & able
to buy is EQUAL to the quantity that
sellers are willing & able to produce
& offer for sale.
Moving to Equilibrium
Equilibrium •
Equilibrium quantity—the
quantity of a good that is bought
and sold in a market that is in
equilibrium.
• Equilibrium price—the price at
which a good is bought and sold
in a market that is in equilibrium.
The point at which quantity demanded
and quantity supplied come together is
known as equilibrium.
Finding Equilibrium
Equilibrium Point
Combined Supply and Demand Schedule
$3.50
$2.50
$2.00
Equilibrium
Price
$1.50
$1.00
$.50
Supply
0
50
a
Equilibrium
Quantity
Price per slice
$3.00
Demand
100 150 200 250 300
Slices of pizza per day
Price of
a slice
of pizza
Quantity
demanded
Quantity
supplied
$ .50
300
100
$1.00
250
150
$1.50
200
200
$2.00
150
250
$2.50
100
300
$3.00
50
350
350
Result
Shortage from
excess demand
Equilibrium
Surplus from
excess supply
Moving to Equilibrium
Surplus
•
Surplus— the condition in which the
quantity supplied of a good is greater
than the quantity demanded.
•
Surpluses occur only at prices above
the equilibrium price.
•
Prices fall when a surplus occurs, b/c
suppliers hope to sell their inventory,
or the excess stock of goods that they
have on hand.
Moving to Equilibrium
Shortage • Shortage—the condition in which
the quantity demanded of a good is
greater than the quantity supplied.
•
Shortages occur only at prices
below the equilibrium price.
•
Prices rise when there is shortage.
Buyers will offer to pay a higher
price to get sellers to sell to them
rather than other buyers.
Shortage vs Surplus
Moving to Equilibrium—Copy this in
your notes!!!
At $15, a surplus occurs. Quantity
supplied (150) is greater than quantity
demanded (50). Price Falls!
At $10, results is neither a surplus nor a
shortage. Quantity supplied (100) is = to
quantity demanded (100).
Equilibrium occurs!
At $5, a shortage happens.
Quantity demanded (150) is greater
than quantity supplied (50).
Price Rises!
Price
Supply
$15
$10
$5
0
Demand
50
100
Quantity
150
Moving to Equilibrium
Equilibrium •
•
When price is at equilibrium level,
there are no shortages or surpluses
of any goods or services.
All buyers and sellers are happy
with the market!
Analyzing Shifts in Supply and Demand
Graph A: A Change in Supply
Graph B: A Change in Demand
$800
$60
a
Supply
$50
b
Original
supply
$40
c
Price
Price
$600
$400
c
$30
a
b
$20
$200
New
supply
Demand
New
demand
Original
demand
$10
0
1
2
3
Output (in millions)
4
5
0
100
200
300
400
500
600
700
800
Output (in thousands)
 Graph A shows how the market finds a new
equilibrium when there is an increase in
supply.
 Graph B shows how the market finds a new
equilibrium when there is an increase in
demand.
900
Price Controls
 Sometimes the government
Price
prevents markets from reaching
Controls
equilibrium price.
 It may do so by setting a Price
Ceiling or a Price Floor
Price Controls
Price
Ceiling
 A price ceiling is a maximum price
that can be legally charged for a
good.
Pe = Price
equilibrium
Pc= Price
Ceiling
 Ex: rent control
 where a gov’t sets a maximum amount
that can be charged for rent in an area.
Price Controls
Price
Floor
•
A price floor is a minimum price, set
by the government, that must be paid
for a good or service.
Pf= Price
Floor
Pe = Price
equilibrium
 Ex: minimum wage
 which sets a minimum price that an
employer can pay a worker for an hour of
labor.
Price Controls
Price
 Price ceilings & Price floors
Controls
have the unintended result of
reducing the amount of trade
in the economy.
Supply & Demand in
Everyday life!
Goods
• Price of consumer goods
(candy bars, bread, etc) is
consistent throughout the
U.S.
• A candy bar in CA costs
pretty much the same as it
does in Wisconsin.
Yes this is
for real
$79.99 @
Amazon!
Supply & Demand in
Everyday life!
Goods
•
Real Estate demonstrates the impact
of supply & demand.
•
•
A house in S.F. will sell for 4 times the
amount of a similar house in Louisville,
Kentucky. (A $1,000,000 house in S.F.
will cost $250,000 in Louisville)
Housing in 2 states can’t move to
equilibrium b/c the land can’t be moved.
$990,000 in
Louisville,
Kentucky
$1,050,000 in
San Francisco,
California
4.26 acres
.125 acres
5 bedrooms & 7
bathrooms
5148 sq feet
3 bedrooms &
2 bathrooms
1494 sq feet
Supply & Demand in
Everyday life!
Movies
•
•
•
Ticket prices to see a movie on
Friday night cost more than a ticket
on a Monday afternoon.
A theater has a fixed number of
seats.
In response to higher demand on a
Friday night, the theater can charge
more!
Supply & Demand in
Everyday life!
Freeway • During rush hour, the demand for
freeway space increases
• This results in shortage of space
= slow traffic
• Solutions
• Build more freeways
• Carpool
• Charge a toll
Supply & Demand in
Everyday life!
Sports
• There a limited number of spots
on sport teams
• Individuals compete for a spot
• Athletes have to train harder &
impress the coaches to get a spot!
Supply & Demand in
Everyday life!
Colleges • Some college require higher
GPA’s & test scores to gain
admission
• A college that is in high
demand will have higher
entrance requirements.
Review
1. Equilibrium in a market means which of the following?
(a) the point at which quantity supplied and quantity
demanded are the same
(b) the point at which unsold goods begin to pile up
(c) the point at which suppliers begin to reduce prices
(d) the point at which prices fall below the cost of
production
2. The government’s price floor on low wages is called
the
(a) market equilibrium
(b) base wage rate
(c) minimum wage
(d) employment guarantee
Review
1. Equilibrium in a market means which of the following?
(a) the point at which quantity supplied and quantity
demanded are the same
(b) the point at which unsold goods begin to pile up
(c) the point at which suppliers begin to reduce prices
(d) the point at which prices fall below the cost of
production
2. The government’s price floor on low wages is called
the
(a) market equilibrium
(b) base wage rate
(c) minimum wage
(d) employment guarantee
Review
1. When a new equilibrium is reached after a
fall in demand, the new equilibrium has a
(a) lower market price and a higher quantity sold.
(b) higher market price and a higher quantity sold.
(c) lower market price and a lower quantity sold.
(d) higher market price and a lower quantity sold.
2. What happens when any market is in
disequilibrium and prices are flexible?
(a) market forces push toward equilibrium
(b) sellers waste their resources
(c) excess demand is created
(d) unsold perishable goods are thrown out
Review
1. When a new equilibrium is reached after a
fall in demand, the new equilibrium has a
(a) lower market price and a higher quantity sold.
(b) higher market price and a higher quantity sold.
(c) lower market price and a lower quantity sold.
(d) higher market price and a lower quantity sold.
2. What happens when any market is in
disequilibrium and prices are flexible?
(a) market forces push toward equilibrium
(b) sellers waste their resources
(c) excess demand is created
(d) unsold perishable goods are thrown out
Review—True or False
1.
When quantity supplied is greater than quantity demanded, a
surplus exists.
2.
A shortage occurs when quantity demanded is greater than
quantity supplied.
3.
The price at which a good is bought and sold in a market that
is in equilibrium is called an equilibrium price.
4.
The stock of goods on hand is called the inventory.
5.
If the price is too high, there is a surplus; if the price is too
low, there is a shortage.
Review—True or False
1.
When quantity supplied is greater than quantity demanded, a
surplus exists.
 TRUE
2.
A shortage occurs when quantity demanded is greater than
quantity supplied.
 TRUE
3.
The price at which a good is bought and sold in a market that
is in equilibrium is called an equilibrium price.
 TRUE
4.
The stock of goods on hand is called the inventory.
5.
If the price is too high, there is a surplus; if the price is too
low, there is a shortage.
 TRUE
 TRUE
Review—True or False
1.
If there is a shortage in the market, price will fall to the
equilibrium price.
2.
Real estate prices vary because of fixed demand.
3.
Tolls alleviate traffic congestion by reducing demand.
4.
Movie tickets cost different prices at different times because
the supply changes.
5.
The demand to drive on freeways is not always the same.
Review—True or False
1.
If there is a shortage in the market, price will fall to the
equilibrium price.
 FALSE
2.
Real estate prices vary because of fixed demand.
3.
Tolls alleviate traffic congestion by reducing demand.
4.
Movie tickets cost different prices at different times because
the supply changes.
 FALSE
 TRUE
 FALSE
5.
The demand to drive on freeways is not always the same.
 TRUE
Summary
 When completing your notes you
need to write a 3-5 sentence
summary of the lecture. This is
a part of your notes grade!