The Price Adjustment Process

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Presentation transcript:

The Price Adjustment Process Chapter 6 Section 2

Price adjustments help a competitive market reach market equilibrium, with fairly equal supply and demand.

Surpluses occur when supply exceeds demand. Shortages occur when demand exceeds supply.

The equilibrium price is the price at which supply meets demand.

A change in price is normally the result of a change in supply, a change in demand, or both.

Elastic supply and demand help keep prices from changing dramatically. Even small changes in an inelastic supply can create big changes in price. Elastic supply and demand help keep prices from changing dramatically. http://www.econ.rochester.edu/eco108/ch5/510.gif

The Competitive Price Theory In theory, a competitive market allocates resources efficiently. To be competitive, sellers are forced to lower prices, which makes them find ways to keep their costs down. http://www.econweb.com/Sample/DemandSupply/MarketAdjust2.html

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