Putting Supply and Demand Together Chapter 7 Section 4 Putting Supply and Demand Together

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Equilibrium Price Price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy.

Showing Supply and Demand

Change in Demand or Supply A change in demand OR supply will shift the curve and result in a new equilibrium price and quantity

Price as a signal Changing prices tell producers to change production and consumers to change spending habits.

Shortage Situation in which the quantity demanded is greater than the quantity supplied at the current price. Pressures producers to raise the price

Surplus Situation in which quantity supplied is greater than the quantity demanded at the current price. Pressures produces to reduce the price

Market Forces Market Forces – Prices rise or fall and eliminate shortages or surpluses as long as it is unregulated by government.

Price Controls Government sometimes sets prices (Try to protect consumers).

Cont. Price Ceilings – A legal MAXIMUM price that may be charged for a particular good or service.

Cont. Creates an artificial shortage of goods/services. Must decide how to ration goods due to the short supply. Can lead to black markets Real world ex. –Rent controls in NYC, Gasoline (70’s)

Price Floors Price Floors – A legal minimum price below which a good or service may not be sold.

Cont. Creates an artificial surplus of goods/services – What should be done with the excess goods and services? Real world ex. – Minimum Wage, Agriculture Price Supports