Download Supply - McEachern High School

Supply
…Meets Demand
Essential Standards
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The student will explain how prices and
profits work to determine production and
distribution in a market economy.
The student will describe the role of buyers and
sellers in determining equilibrium price.
The student will illustrate on a graph how supply
and demand determine equilibrium price.
The student will explain and illustrate on a graph
how price floors create surpluses and
price ceilings create shortages.
Market Equilibrium
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A situation where
the quantity
supplied and the
quantity
demanded are
EQUAL…
And the needs of
both producers
and consumers
are satisfied.
Demand and Supply Schedule for Tennis Shoes
Price
Q.D.
Q.S.
$15
180
0
$30
150
30
$45
120
60
$60
90
90
$75
60
120
$90
30
150
$105
0
180
Supply & Demand Schedule for Tennis Shoes
$105$90-
P
R
I
C
E
$75$60$45-
$30$15$0,0
30
60
90
120
150
Quantity Demanded and Supplied
180
A Delicate Balance
The market is rarely in
equilibrium.
► Usually the market is in
disequilibrium—when
quantity supplied is not
equal to quantity demanded.
► Disequilibrium results in
surpluses and shortages.
► Surplus—quantity supplied
exceeds quantity
demanded.
► Shortage—quantity
demanded exceeds quantity
supplied.
►
Price Floors and Ceilings
 To control prices,
governments
sometimes set PRICE
CEILINGS and PRICE
FLOORS.
 Price ceilings—
government
regulations that
establish a maximum
price for a particular
good.
 Price floor—
government regulation
that establishes a
minimum price.
 Sometimes the government
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decides that “prices are too
high”…
And that it should do
something to “help”
consumers…
So it sets a price ceiling.
The best example of a price
ceiling is RENT CONTROL—
A MAXIMUM PRICE for
housing.
However, rent control keeps
prices TOO LOW…
When prices are too low,
Quantity Demanded…
SKYROCKETS…
But at low prices, there is
little incentive for
SUPPLIERS…
And this ALWAYS leads to…
SHORTAGES.
The Unintended
Consequences of
Price Ceilings
 Sometimes the government
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decides that “prices are too
low”…
And that it should do
something to “help”
suppliers…
So it sets a price floor.
The best example is
MINIMUM WAGE—the
MINIMUM PRICE that
workers can accept for their
labor.
However, this keeps LABOR
PRICES too high…
When the price of labor is
HIGH…
QUANTITY DEMANDED is…
LOW…
Causing a SURPLUS of
workers.
PRICE FLOORS cause
SURPLUSES.
The Unintended
Consequences
of Price Floors
The implementation of a
government-mandated minumum
price is known as a...
A.) price floor.
B.) price ceiling
C.) surplus
D.) shortage
A common unintended
consequence of price ceilings is...
A.) surpluses
B.) shortages
C.) scarcity
The best example of price floor is...
A.) rent control
B.) minimum wage
C.) sales tax
D.) social security