Date: November 13, 2015 Topic: Combining Supply and Demand. Aim: How did supply and demand meet? Do Now: How did the documentary “Inside Job” impact your opinion of the economic industry (provide examples)?

Laws of Supply and Demand.  The law of demand is centered around…?  The law of supply is centered around …?

BALANCE TO THE FORCE!

BALANCE

 The point of balance between price and quantity.  At Equilibrium, the market for a good is stable.

When supply and demand meet in the marketplace, a market price is created. This is equilibrium price. The best way to visualize equilibrium price to place the supply and demand curves in the same diagram.

 Equilibrium in a market occurs when the price balances the plans of buyers and sellers.  It sets the value of the product.  Equilibrium price is represented by the point where the demand and supply curves intersect.

 When the quantity supplied is not equal to quantity demanded in a market.  The market price of the quantity supplied is anywhere but at the equilibrium. THERE IS NO BALANCE!

 Quantity demanded is more than the quantity supplied.  The actual price in a market is below the equilibrium price  A low price encourages buyer and discourages sellers.

 Quantity supplied exceeds quantity demanded.  If the price is too high, then the market will face a problem of excess supply.

Price Ceiling: Maximum price that can be legally charged for a good. (Considered “essential” & become too expensive) Price Floor: Minimum price for a good or service.

 Rent control is an example of a price ceiling.  Motivated by a desire to help poor/middle class households cut costs.  Reduces quantity/quality of housing.  This price ceiling increases quantity demanded but decreases quantity supplied.

 Employers pay workers hourly for unskilled labor.  Federal government (or state) sets a base level for the minimum wage.  If the minimum wage is set above the market equilibrium wage rate, there will be a surplus of labor.  Firms will employ fewer low skilled workers than they would at the equilibrium wage rate.

SUMMARY: How does supply and demand create balance in the marketplace?