Download Supply and Demand

Bell Ringer
Item
Bathing
suits
Turkeys
Bicycles
Backpacks
When Price is
Highest
When Price is
Lowest
Why does the
price change?
Objectives
1.
2.
Explain how supply and demand
create equilibrium in the
marketplace.
Describe what happens to prices
when equilibrium is disturbed.
Chapter 6, Section 1
Introduction
 Crash
Course in Economics –
“Supply and Demand”
Chapter 6, Section 1
What is Equilibrium?
Equilibrium  the point at which the demand
for a product or service is equal to the supply of
that product or service
• When a market reaches equilibrium, it is stable.
Chapter 6, Section 1
Why is equilibrium a good thing?
Remember that equilibrium is the point where
supply and demand meet (or are equal).
 How does this benefit buyers and sellers?

– Think-pair-share
Benefits to buyers
Chapter 6, Section 1
Benefits to sellers
Disequilibrium

What market condition
might cause Little Caesar's
to throw out pizza at the
end of the day?
– If the market price or
quantity supplied is
anywhere but at equilibrium,
the market is said to be at
disequilibrium.
Chapter 6, Section 1
Disequilibrium

Disequilibrium can produce two
possible outcomes:
– Shortage— Demand for a good
is greater than supply.
Prices rise.
– Surplus— Supply for a good is
greater than demand.
Prices drop.

What market condition might
cause Little Caesar's to throw
out pizza at the end of the
day?
– A: Surplus
Chapter 6, Section 1
Shortage and Surplus

Shortage and surplus both lead to a market with
fewer sales than at equilibrium. How??
Chapter 6, Section 1
Fads and Shortages

As a result of fads,
shortages appear to
customers in different
forms:
– Empty shelves at the
stores
– Long lines to buy a
product in short supply
– Search costs, such
as driving to multiple
stores to find a
product.
http://www.youtube.com/watch?v=9sOlIvx7Pvs
http://www.youtube.com/watch?v=ltsN5WP2axE
https://www.youtube.com/watch?v=2f-YZnOMF0U
Chapter 6, Section 1
How Supply and Demand Affect
Equilibrium
Changes in supply and demand cause
prices to go up and down, which disrupts
the equilibrium for a particular good or
service.
 In a free market, price and quantity will
tend to move toward equilibrium
whenever they find themselves in
disequilibrium.
 What did Adam Smith call this
tendency?

Chapter 6, Section 1
Reaching a New Equilibrium

Eventually, the increase in demand for a
particular good will push the product to
a new equilibrium price and quantity.

Once a fad reaches its peak, though,
prices will drop as quickly as they rose:
– A shortage becomes a surplus, causing the
demand curve to shift to the left and restoring
the original price and quantity supplied.
Chapter 6, Section 1
Shortages
Surpluses
Shortages cause a firm to
raise its prices.
Surpluses cause a firm
to drop its prices.
Higher prices cause the
quantity supplied to rise.
Lower prices cause the
quantity supplied to fall.
This causes the quantity
demanded to fall.
This causes the quantity
demanded to rise.
EQUILIBRIUM
EQUILIBRIUM
Chapter 6, Section 1
A “Moving Target”

Equilibrium for most products is
in constant motion.

Think of equilibrium as a
“moving target” that changes
as market conditions change.

As supply or demand increases
or decreases, a new equilibrium
is created for that product.
Chapter 6, Section 1
Equilibrium Cartoon

Working by yourself or
with a partner, create a
three to five panel
cartoon that illustrates
how extreme demand
for a toy (like Tickle-MeElmo) returns from a
shortage to equilibrium.
Chapter 6, Section 1
Key Terms
equilibrium: the point at which the
demand for a product or service is equal
to the supply of that product or service
 disequilibrium: any price or quantity not
at equilibrium
 shortage: when quantity demanded is
more than quantity supplied
 surplus: when quantity supplied is more
than quantity demanded

Chapter 6, Section 1
Supply and Demand Game
• Teams of 3-4
• One question per team
at a time.
• One point for correct
answer, one point for
correct explanation.
•Winning team gets extra
credit!
http://www.reffonomics.com/TRB/chapter4/sd12.swf
Chapter 6, Section 1
Equilibrium Quiz
1. When quantity demanded is more than
quantity supplied.
2. When quantity supplied is greater than
quantity demanded.
3. The point at which quantity demanded
and quantity supplied are equal.
Chapter 6, Section 1
Equilibrium Quiz
4. When there is a surplus of a good, what
happens to the price?
5. What happens to the market for
marijuana when the DEA makes a huge
bust on the border?
6. What happens to the market for gasoline
when the economy enters into a
recession?
Chapter 6, Section 1
Bell Ringer
 Who
do you think benefits the
most from an increase in the
minimum wage?
 Who benefits the least from (or is
hurt by) an increase in the
minimum wage?
Chapter 6, Section 1
Chapter 6, Section 1
Chapter 6, Section 1
Objectives
1.
2.
Identify two ways that the
government intervenes in markets
to control prices.
Analyze the debate surrounding
the federal minimum wage.
Chapter 6, Section 1
Price Ceiling
While markets tend toward equilibrium on their
own, sometimes the government intervenes and
sets market prices. Price ceilings are one way
the government controls prices.
 Price ceilings- the maximum price that can
legally be charged for a good or service
 EXAMPLE: Tortillas in Mexico

 “Tortilla Price Stabilization Pact”
 In 2007, President Calderon
created an agreement between
the Mexican Federal Government
and several tortilla companies in
Mexico to set a price ceiling for
tortillas (8.50 pesos/kg)
Chapter 6, Section 1
corn
Price Floors
A price floor is a
minimum price set by
the government.
 The minimum wage
is an example of a
price floor.
 Minimum wage
affects the demand
and the supply of
workers.

Chapter 6, Section 1
Minimum Wage
 What
is the current federal minimum
wage?
$7.25
 What is the minimum wage in
Arizona?
$8.05
 What do you think the minimum
wage should be?
Chapter 6, Section 1
http://money.cnn.com/interactive/economy/minimum-wage-since-1938/
Chapter 6, Section 1
Minimum Wage Argument

Obama’s 2014 State of the Union:
https://www.youtube.com/watch?v=SL36il5Ojtc

“The Truth About the Minimum Wage”:
https://www.youtube.com/watch?v=siW0YAAfX6I

“Raise the Minimum Wage to $15/Hour”:
https://www.youtube.com/watch?v=GOqtl53V3JI
Chapter 6, Section 1
Minimum Wage Argument

How does a minimum wage increase hurt
businesses?
– Increased labor costs
– Increased prices (less competitive)

What are some ways businesses can respond to
a minimum wage increase?
–
–
–
–
–
Reduce workers
Less training
Less health care benefits
Raise prices
Live with fewer profits… yeah, right!
Chapter 6, Section 1
Minimum Wage Argument

How does a minimum wage increase help
businesses?
– More competitive workforce
– More productive workers
– More skilled/educated workers
– Increased wages = increased spending
Chapter 6, Section 1
Minimum Wage Argument
What are some
consequences for
unemployment?
For underpayment?
 Which is a
greater problem:
unemployment or
underpayment?

Chapter 6, Section 1
Bell Ringer
 List
three ways that raising the minimum
wage hurts the economy.
 List three ways that raising the minimum
wage helps the economy.
Chapter 6, Section 1
Objectives
1.
2.
Identify the many roles that prices
play in a free market.
Describe the role of the “black
market” in the global economy.
Chapter 6, Section 1
Introduction

What roles do prices play in a free market
economy?
– In a free market economy, prices are used to
distribute goods and resources throughout the
economy.
– Prices play other roles, including:
 Serving as a language for buyers and sellers
 Serving as an incentive for producers
 Serving as a signal of economic conditions
Chapter 6, Section 1
The Role of Prices
Prices provide a standard of measure
of value throughout the world.
 Prices act as a signal that tells producers
and consumers how to adjust.

Chapter 6, Section 1
The Role of Prices

Prices tell buyers and sellers whether
goods are in short supply or readily
available.
BP gas station, immediately
following Hurricane Katrina
Chapter 6, Section 1
The Role of Prices

The price system is flexible and free, and
it allows for a wide diversity of goods
and services.
Chapter 6, Section 1
The Black Market


Chapter 6, Section 1
Since the government
cannot track all of the
goods passing through the
economy, people
sometimes conduct
business on the black
market in order to bypass
rationing and legal
restrictions.
Choco Pies in North Korea:
https://www.youtube.com/
watch?v=UfxOTEqVVaQ
What are the top three black market items
in the world?
ChapterNBC
6, Section
1 2008
Source:
News,
The Black Market
What countries do you think have a large
black market?
 Are there particular types of regions that
we associate with the black market? Why?

Chapter 6, Section 1