Graphing Supply and Demand SSEMI2 The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine production and distribution in a market economy. c. Illustrate on a graph how supply and demand determine equilibrium price and quantity. SSEMI3 The student will explain how markets, prices, and competition influence economic behavior. a. Identify and illustrate on a graph factors that cause changes in market supply and demand. b. Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages.

Equilibrium Price and Quantity Located at the intersection of supply and demand Also called Market Clearing Price The point where the quantity demanded equal to the quantity supplied.

Price Floor Government Price controls = when a gov’t sets a legal maximum/minimum price in a market Price floor = legal minimum for a good, service, or factor of production. Anything below the price floor = illegal i.e. minimum wage Creates a surplus on the market

Price Floors Surplus = when supply is greater than demand Price floor = surplus = gov’t sets price higher than consumers willing to buy Minimum wage = surplus In this case: Consumers are businesses Sellers are laborers Consumers (the businesses) don’t want to buy laborers at high price

Price Ceiling Price ceiling = legal maximum for a good/service/fop Charging over the maximum is illegal i.e. rent control Creates a shortage. Suppliers not willing to supply market with the amount consumers are demanding at this price.

Price Ceiling Problems w/Price controls: Create underground markets No taxes collected on these goods, i.e. subletting Landlords = no incentive to keep apartments in good condition Eventually converted to condos or sold off

Steping Subsidies and taxes Technology Expectations Productivity (worker) Inputs (costs of) Number of sellers changes. Government regulations

Nicest Number of buyers Income of consumers Complements Expectations of Consumers Substitutions Taste of consumers