Combining Supply and Demand SSEMI3: The student will explain how markets, prices, and competition influence economic behavior.

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Presentation transcript:

Combining Supply and Demand SSEMI3: The student will explain how markets, prices, and competition influence economic behavior

Disequilibrium Quantity demanded ≠ quantity supplied Quantity demanded ≠ quantity supplied

Excess Demand a.k.a. Shortages Quantity demanded > quantity supplied Quantity demanded > quantity supplied

Excess Supply a.k.a. Surpluses Quantity supplied > quantity demanded Quantity supplied > quantity demanded

Government Intervention #1:Price Ceilings – maximum price that can be legally charged for a good #1:Price Ceilings – maximum price that can be legally charged for a good

Example: New York City Rent Control Example: New York City Rent Control  Originated after WWII to prevent inflation  Helps lower-income households by cutting housing costs

#2: Price Floors – minimum price for a good/service set by govt. #2: Price Floors – minimum price for a good/service set by govt.

Example: Example:  Minimum Wage laws – est. the min. price that an employer can pay a worker for an hour of labor

Example #1: Supply and Demand Schedule Quantity Demanded Quantity Supplied $2.255,000,0003,000,000 $3.754,000,0004,000,000 $5.253,000,0005,000,000 $6.502,000,0006,000,000

Create the Supply and Demand Curves X-Axis: Price X-Axis: Price Y-Axis: Quantity Y-Axis: Quantity Label the supply curve Label the supply curve Label the demand curve Label the demand curve Label the equilibrium point (E1) Label the equilibrium point (E1)

What is the equilibrium price? _________ Suppose the federal government has imposed a minimum wage of $6.50. Is this an example of a price ceiling or price floor? Draw this wage requirement on your graph.

What is the effect on the labor market? Excess Demand or Excess Supply According to this graph, how large is the surplus of workers when the minimum wage is $6.50?

Example #2: Supply and Demand Schedule Quantity Demanded Quantity Supplied $30050,00010,000 $60040,00020,000 $90030,00030,000 $1,20020,00040,000 $1,50010,00050,000

Create the Supply and Demand Curves X-Axis: Price X-Axis: Price Y-Axis: Quantity Y-Axis: Quantity Label the supply curve Label the supply curve Label the demand curve Label the demand curve Label the equilibrium point (E1) Label the equilibrium point (E1)

What is the equilibrium price? ______ Suppose the Atlanta city government imposes a law that limits rent on two- bedroom apartments to $600 per month. Is this is a price floor or price ceiling?

Draw the new price requirement on your graph. What is the effect on the market? Excess Demand or Excess Supply

What problems occur for landlords and renters as a result of the price ceiling? Low prices entice people to try to get apts., but there aren’t enough Low prices entice people to try to get apts., but there aren’t enough Landlords have difficulty earning profits or breaking even Landlords have difficulty earning profits or breaking even Someone must determine which (20,000) people will get the apts (leads to waiting lists, discrimination by landlords, bribery) Someone must determine which (20,000) people will get the apts (leads to waiting lists, discrimination by landlords, bribery)