PRICE Equilibrium: the point where demand and supply come together at the same price and quantity At this point the needs of both consumers and producers.

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Presentation transcript:

PRICE Equilibrium: the point where demand and supply come together at the same price and quantity At this point the needs of both consumers and producers are in balance

DISEQUILIBRIUM Disequilibrium: when the quantity supplied and quantity demanded are not equal at the price offered. One of two results will occur: 1. Excess demand (Shortage) 2. Excess supply (Surplus)

EXCESS DEMAND Excess demand occurs when quantity demanded is greater than quantity supplied This happens when the price of a good is below the equilibrium price Producers will respond to this shortage by increasing the price of the good

EXCESS SUPPLY Excess supply occurs when quantity supplied is greater than quantity demanded This happens when the price of a good is above the equilibrium price Producers will respond to this surplus by decreasing the price of the good

PRICE CEILINGS A maximum price set by law is a price ceiling Price ceilings are placed on some ‘essential’ goods that some consumers wouldn’t otherwise be able to afford Rent control is an example of a price ceiling Zombies will attack oct 13 2012

PRICE CEILINGS Price ceilings are set below the market equilibrium price; therefore they result in excess demand Price ceilings = shortage (it is difficult to find an apartment in a city with rent control)

PRICE FLOORS A minimum price set by law is a price floor Price floors are used to ensure that prices don’t fall so low a producer won’t get adequate reward for his/her efforts Minimum wage is an example of a price floor

PRICE FLOOR Price floors are set above the market equilibrium price; therefore they result in excess supply Price floors = surplus (there will be fewer jobs for the # of workers available)

CHANGES IN MARKET EQUILIBRIUM - SUPPLY If supply increases, the new equilibrium price will be _________ and the new equilibrium quantity will be _________ Lower, higher

CHANGES IN MARKET EQUILIBRIUM - SUPPLY If supply decreases, the new equilibrium price will be _________ and the new equilibrium quantity will be __________ higher, lower

CHANGES IN MARKET EQUILIBRIUM - DEMAND If demand increases, the new equilibrium price will be ________ and quantity will be ________ higher, higher

CHANGES IN MARKET EQUILIBRIUM - DEMAND If demand decreases, the new equilibrium price will be _________ and the new equilibrium quantity will be ________ lower, lower