Equilibrium When Supply Met Demand.

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Presentation transcript:

Equilibrium When Supply Met Demand

Demand Review What is the definition of demand? What is the Law of Demand? What does the demand curve look like?

Demand - Down Price Quantity D The demand curve is downward sloping

Supply Review What is the definition of supply? What is the Law of Supply? What does the supply curve look like?

Supply - Up Price Quantity S The supply curve is upward sloping

Prices Consumers want to minimize costs Producers want to maximize profits Prices are determined where supply meets demand. The point where the supply curve hits the demand curve is called EQUILIBRIUM.

When Supply Met Demand Price Quantity D S

Market Equilibrium Equilibrium Price The price where quantity supplied = quantity demanded Equilibrium Quantity The quantity supplied and demanded at equilibrium price Where is it??

“X” Marks the Spot! S Price D Quantity Equilibrium price & quantity are determined by where supply meets demand Price Quantity D S Peq Qeq

Changes in Equilibrium Shifts in the supply and demand curve cause equilibrium to change This causes an increase/decrease in equilibrium price and/or an increase/decrease in equilibrium quantity.

Increase in Demand Price D2 D1 Quantity INCREASE in demand shifts in the demand curve to the RIGHT Price Quantity D1

Decrease in Demand Price D1 D2 Quantity DECREASE in demand shifts in the demand curve to the LEFT Price Quantity D1 D2

Why Demand Shifts: Determinants of Demand Income Tastes and Preferences Substitute Goods Complementary Goods Weather Number of Buyers Expectations

INCREASE in supply shifts the supply curve to the RIGHT Price Quantity S1 S2 INCREASE in supply shifts the supply curve to the RIGHT

DECREASE in supply shifts the supply curve to the LEFT Price Quantity S1 DECREASE in supply shifts the supply curve to the LEFT

Why Supply Shifts: Determinants of Supply Technology/Productivity Cost of Inputs/Factors of Production Number of Sellers Producer Expectations Government Price of Related Goods Weather/Natural Disasters

Graphing Practice #1: Increase in Demand Demand increases Peq and Qeq increases Price Quantity D1 S Peq2 Qeq2 Peq1 Qeq1

Graphing Practice: #1 on Wksht Demand increases Decrease in Supply Peq increases Change in Qeq can’t be determined D2 Price Quantity D1 S Peq2 Peq1 Qeq1