© EMC Publishing, LLC

Supply and Demand Together 6 Section 1 Supply and Demand Together © EMC Publishing, LLC

Moving to Equilibrium Supply and demand work together to determine price. A surplus occurs when the quantity supplied of a good is greater than the quantity demanded. Qs > Qd Drop prices Reduce production © EMC Publishing, LLC

Exhibit 6-1 from Student Text Only at a price of $4 is the quantity demanded equal to the quantity supplied. When: Quantity supplied (Qs) > Quantity demanded (Qd) = Surplus Qd > Qs = Shortage Qd 5 Qs = Equilibrium © EMC Publishing, LLC

Moving to Equilibrium (cont.) A shortage occurs when the quantity demanded of a good is greater than the quantity supplied. Qd>Qs Increase prices Increase production equilibrium D=S © EMC Publishing, LLC

Moving to Equilibrium (cont.) Market tends toward equilibrium. The equilibrium quantity is the amount of a good that is bought and sold in a market that is in equilibrium. The equilibrium price is the price at which a good is bought and sold in a market that is in equilibrium. © EMC Publishing, LLC

What Causes Equilibrium Prices to Change? Either supply or demand must change in order for the equilibrium price to change © EMC Publishing, LLC

Exhibit 6-2 from the Student Text © EMC Publishing, LLC

Changes in Supply and in Demand at the Same Time So far, we have looked at situations where either supply or demand has changed. Often, both supply and demand are changing. The change in equilibrium price will be determined by which changes more, supply or demand. © EMC Publishing, LLC

Does It Matter If Price Is at Its Equilibrium Level? When price is at its equilibrium level, there are no shortages or surpluses of any goods or services. Buyers are able and willing to buy the amount of the good that sellers are able and willing to sell. © EMC Publishing, LLC

Price Is a Signal Price serves as a signal that directs the allocation of resources toward those goods that consumers want to buy. © EMC Publishing, LLC

What Are Price Controls? Sometimes the government prevents markets from reaching an equilibrium price. A price ceiling is a price that is set lower than the equilibrium price. Rent Control The government can also set a price floor, which is a price that is set above the equilibrium price. Minimum wage. © EMC Publishing, LLC

Exhibit 6-5 from the Student Text Price ceiling Price floor A price ceiling creates a shortage and reduces the quantity of a good bought and sold. A price floor creates a surplus and reduces the quantity of the good bought and sold.

Price Controls and the Amount of Exchange Price ceilings and price floors have the unintended result of reducing the amount of trade in the economy. © EMC Publishing, LLC

Price and Speculators Speculators do things they hope will earn them profits (such as buying and selling specific goods). Speculators reduce the variability in prices from one year to the next by reallocating supply between years. © EMC Publishing, LLC

Supply and Demand in Everyday Life 6 Section 2 Supply and Demand in Everyday Life © EMC Publishing, LLC

Why the Long Lines for Concert Tickets? When some people are unable to purchase a good that they are willing and able to purchase, it means that quantity demanded exceeds quantity supplied. The result is a shortage in the market. © EMC Publishing, LLC

The Differences in Prices for Candy Bars, Bread, and Houses In general, the price of many consumer goods is consistent throughout the United States. You can expect to pay approximately the same for a candy bar, or a loaf of bread, in any state. Real estate prices demonstrate the impact of supply and demand. A house in San Francisco, California, price of a similar house in Louisville, Kentucky. © EMC Publishing, LLC

Supply and Demand at the Movies Have you noticed that ticket prices to see a movie on Friday night are different than ticket prices for Sunday afternoon? A theater has a fixed number of seats. In response to higher demand on Friday night, it charges a higher price for those tickets. © EMC Publishing, LLC

Supply and Demand on a Freeway Most of the time, traffic is able to move freely on the freeway. However, during rush hour, the demand for freeway space increases. This results in a shortage of space and in slower traffic. One solution to freeway congestion is to build more freeways. Building more freeway space will increase the supply, helping to meet demand. Toll on freeway use during rush hour Carpool © EMC Publishing, LLC

Necessary Conditions for a High Income: High Demand, Low Supply To earn a high wage, a person must perform a job that is in high demand and that not many other people can do. If few know how to do the job, then supply will be low. Low supply and high demand will result in relatively higher wages. © EMC Publishing, LLC