Markets, Equilibrium, and Prices Unit 6 Essential Question: How do you know when the price is “right”?

When Demand meets Supply Market equilibrium – point where the quantity consumers are willing to buy, equals quantity producers are willing to sell Or, it’s the point where Supply & Demand curves intersect. There…is the equilibrium price and… …the equilibrium quantity too.

When the price isn’t right If price is too low, shortages result… …people demand more at that price than suppliers are willing to supply. If price is too high, surpluses result… …people demand less at that price than suppliers have supplied. The market dislikes these and will drive prices to move toward the equilibrium point.

Shifts in demand or supply This is NOT change in quantity demanded (where you slide on the curve…based on a price change) Case study: blueberry smoothies News: blueberries are brain fuel! D or S affected? Up or down? Increase in demand (shift right or left?) (shift to right) News: drought in blueberry fields! Decrease in supply (shift right or left?) (shift to left)

Shifts (cont.) News: Blueberries stop cancer! D or S affected? Up or down? Increase in demand (shift right or left?) (shift to right) We have a new equilibrium at e1 News: Super-productive blueberry bush created! Increase in supply (shift right or left?) We have a new, new equilibrium at e2

Price controls Should gov’t set prices? Price floor – setting a minimum price above the equilibrium point “Floor” b/c price wants to push downward Surplus results Price ceiling – setting a maximum price below the equilibrium point “Ceiling” b/c price wants to push upward Shortage results …then rationing, then black market.