Supply and Demand in a Market Economy

What is Supply and Demand? Supply = The amount of something that is available Demand = The number of consumers who want an item I made a delicious pizza! WAHOOO!! WE’LL TAKE IT!!!

Graphing Supply and Demand Economic charts are always graphed in this manner: Supply Demand PRICE QUANTITY (AMOUNT)

Looks like $1 is the perfect price! Balancing the Budget In order for buyers and sellers to be satisfied with a purchase, a balance must be made. Equilibrium Point = The quantity of a supplied good meets the demand! (both the buyer and seller are satisfied) $1 is the perfect price for me! Any more and I’ll go eat something else. My goal is to sell my pizza for as much money as people are willing to pay Looks like $1 is the perfect price!

Graphing Equilibrium Point Equilibrium Supply Point Demand PRICE QUANTITY (AMOUNT)

What Happens If… If the price of a good is too LOW, a shortage occurs If the price of a good is too HIGH, a surplus occurs. Come and get it! Pizza for a nickel! We ALL want pizza since the price is so low! Oh no, I don’t have enough pizza for ALL these guys! I should never have charged $50 per pizza…now NOBODY will buy my food and I have all these extra pizzas!

PRICE Graphing a Shortage QUANTITY (AMOUNT) Equilibrium Supply Demand Point Demand PRICE QUANTITY (AMOUNT)

PRICE Graphing a Surplus QUANTITY (AMOUNT) Equilibrium Supply Demand Point Demand PRICE QUANTITY (AMOUNT)

PRICE What Happens If… QUANTITY (AMOUNT) If there is an INCREASE in demand, the demand curve moves RIGHT. How do we reach a new Equilibrium Point? Equilibrium Supply Point D2 D1 PRICE QUANTITY (AMOUNT)

PRICE What Happens If… QUANTITY (AMOUNT) The same is true for the Supply Curve! If there is an INCREASE in supply, the supply curve moves LEFT. If there is a DECREASE in supply, the supply curve moves LEFT If there is a DECREASE in demand, the demand curve moves LEFT. How do we reach a new Equilibrium Point? Equilibrium Supply Point D1 D2 PRICE QUANTITY (AMOUNT)