© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.11 CHAPTER 6 Market Forces Price, Quantity, and Market Equilibrium Shifts of Demand and Supply Curves Market Efficiency and Gains from Exchange

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.12 CHAPTER 6 Market Forces  How is market competition different from competition in sports and in games?  Why do car dealers usually locate together on the outskirts of town?  What’s the difference between making stuff right and making the right stuff?  Why do government efforts to keep rents low usually lead to a housing shortage?  Why do consumers benefit nearly as much from a low price as from a zero price? Consider

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.13 LESSON 6.1 Price, Quantity, and Market Equilibrium  Understand how markets reach equilibrium.  Explain how markets reduce transaction costs. Objectives

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.14 LESSON 6.3 Price, Quantity, and Market Equilibrium  equilibrium  surplus  shortage  transaction cost Key Terms

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.15 Market Equilibrium  When the quantity that consumers are willing and able to buy equals the quantity that producers are willing and able to sell, that market reaches equilibrium.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.16 Equilibrium in the Pizza Market

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.17 Surplus Forces the Price Down  Surplus—at a given price, the amount by which quantity supplied exceeds quantity demanded.  As long as quantity supplied exceeds quantity demanded, the surplus forces the price lower.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.18 Shortage Forces the Price Up  Shortage—at a given price, the amount by which quantity demanded exceeds quantity supplied.  As long as quantity demanded and quantity supplied differ, this difference forces a price change.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.19 Market Forces Lead to Equilibrium Price and Quantity  The equilibrium price, or market-clearing price, equates quantity demanded with quantity supplied.  Because there is no shortage and no surplus, there is no longer any pressure for the price to change.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Market Exchange  Markets answer the questions  What to produce  How to produce it  For whom to produce it

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Adam Smith’s Invisible Hand  Although each individual pursues his or her own self-interest, the “invisible hand” of market competition promotes the general welfare.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Market Exchange Is Voluntary  Neither buyers nor sellers would participate in the market unless they expected to be better off.  Prices help people recognize market opportunities to make better choices as consumers and as producers.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Markets Reduce Transaction Costs  Transaction costs—the cost of time and information needed to carry out market exchange.  The higher the transaction cost, the less likely the exchange will take place.