Putting Supply and Demand together Combine the supply curve and the demand curve and we can find a market price

Market Equilibrium: the intersection of the supply and demand curves Market Equilibrium: the intersection of the supply and demand curves. This should be the market price/quantity. If it is not, then supply, demand, and price will all move towards the equilibrium point.

This price is above equilibrium (to high) it should work towards the EQ

This price is below equilibrium (to low) it should work towards the EQ

Surplus: when supply exceeds demand, prices will naturally fall.

Shortage: when demand exceeds supply, prices will naturally rise.

All the mechanics of Demand and Supply still are in effect…now we are just putting the two together. SO…………………

Any change in the price of the product DOES NOT shift (move) either curve! This is a change in QUANTITY supplied and QUANTITY demanded

All the reasons I gave you (non-price determinants) will shift the curves…increase shift curves to the right and decrease shift curves to left…

Changes in SUPPLY

Changes in DEMAND

Shifting Demand

Shifting Supply

Price Floor

Price Ceilings

What are Market Failures? When a market partially forms Markets are present but very limited When free markets fail to develop Markets are created but do not spread out to meet increasing demand When markets fail to allocate resources efficiently The company or market itself collapses

Types of Market Failures Market Inefficiency Monopolies Missing/Incomplete Markets Negative Externalities Property Rights Unstable Markets Inequality

Market Inefficiency Markets fail to allocate resources in an inefficient manner. Firms wasting resources New business comes in and tries to under cut the competition

Monopolies Control of a market by one firm, two firms (duopoly) or a small group (oligopoly) Can cause unfair practices and prices driving buyers and competition out of the market Google? Google owns about 67% of the global search market Google search, Google Earth, Google Blogger, Google Translate, Google Docs, Google Calendar, Google Sites, Gmail, Google Plus, and since 2006, Youtube.

Missing/Incomplete Markets Markets fail to form or partially form Most cases the government supplies these Public Goods such street lights, bridges, public schools Not profitable enough to attract sellers

Negative Externalities The negative cost incurred by third parties as a result of a market transaction Pollution (environmental and noise) Usually regulation will follow to lower the cost of the externality Sun Chips biodegradable bag…

Property Rights When the market utilizes resources that are not private property Can result in a lack of resources or conflict that make it inefficient Mining in public areas or on water International fishing

Unstable Market Market instability usually due to external factors or tastes Food would be one without Subsidies/ Price Floors/ etc. Swai/Basa , Vietnamese catfish

Inequality Markets may have a higher income target consumer and thus limit growth based on income gap Creation of a new watch at $250,000 a unit

Supply Elasticity

Elasticity of supply is mostly based on time How quickly can producers adjust to changes in demand Can you think of any examples of something that the supply is inelastic? Can you think of a product that is perfectly elastic? Why do producers need time to react to market changes?

Elasticity This is a measurement of how responsive we are to changes in price.

Unit Elastic When % change in demand is about the same as % change in price.

Elastic products This means that a change in price will create a significant change in demand % change in demand > % change in price

Inelastic products Change in price yields little to no response change in demand. % change in demand < % change in price