Putting Supply and Demand Together

Defining and Moving to Equilibrium Both supply and demand work Equilibrium the point at which the quantity – At equilibrium, the market for a good is stable Quantities supplied and demanded will Disequilibrium any price or quantity not at equilibrium;

Excess Demand Shortage the condition in which the quantity demanded – Shortages occur only When actual price in a market is below the equilibrium, you have excess demand As long as there is excess demand, and the quantity demanded exceeds the

Excess Supply Surplus quantity supplied of a good is – Surpluses occur only at prices High price encourages owners to produce more, As price falls, demand rises and Whenever the market is in disequilibrium and prices are flexible,

Role of Price Ceilings on Supply and Demand Price ceiling a maximum Ceilings are put on goods that are considered essential and Rent control a price ceiling – Goal help poor – Problem reduces quality – Leads to increased demand and

Ceilings will reduce the Landlords may try to increase income No incentive to attract renters and buildings will be run-down Renters may have to wait months Role of Price Ceilings and Rent Control

Role of Price Floors on Supply and Demand Price floor a minimum Leads to an increase in supply and Imposed when the government wants sellers

Role of Price Floors on Supply and Demand Minimum wage a minimum price that an employer When minimum wage is set above the market equilibrium wage rate,