Unit 3: Supply and Demand Chapter 6: Prices

Supply and Demand Meet Equilibrium – the POINT where demand and supply come together Here the market is stable firms are satisfied with producing a certain quantity of goods at a certain price customers are satisfied with buying that same quantity of goods at that same price

Supply and Demand Meet Discovering equilibrium on a combined supply and demand schedule just look for the line where the same quantity exists for both supply and demand make sure it’s the same line showing a single price

Supply and Demand Meet

Supply and Demand Meet Discovering equilibrium on a combined supply and demand curve just look for the place where the two lines intersect follow the line down to discover the quantity follow the line to the left to discover the price

Supply and Demand Meet

Supply and Demand Meet Market benefits supply and demand can only ever meet at ONE point firms will best know how much of a good to produce firms will know best what price to charge Customers will let it be known (consumer sovereignty)

Supply and Demand Meet Disequilibrium when the market isn’t balanced Shortage there is more demand for goods than what is produced some customers are left unsatisfied occurs when the price is too low customers want a lot of those goods at that price firms don’t make a lot of those goods for that price

Supply and Demand Meet Disequilibrium when the market isn’t balanced Surplus there is less demand for goods than what is produced some goods are left on the shelves or thrown away (wasted) occurs when the price is too high customers don’t want a lot of those goods at that price firms make a lot of those goods for that price

Government Actions Price ceiling the HIGHEST price that can be charged it keeps the price from RISING to the natural point of equilibrium so the ceiling must be below the natural point of equilibrium Effects firms don’t supply as much of the good as what is demanded some customers don’t get the good (shortage) some customers do get the goods at a bargain price

Government Actions

Government Actions Price floor the LOWEST price that can be charged it keeps the price from FALLING to the natural point of equilibrium so the floor must be above the natural point of equilibrium Effects firms supply more of the good as what is demanded some goods are not bought and are wasted (surplus) some firms do get to sell the goods at a higher price

Government Actions

Government Actions Price floor the LOWEST price that can be charged examples cigarette prices milk prices minimum wage