Supply Practice Problems

Market Equilibrium! So how do we actually know what the price of something will be?

Market Equilibrium Demand: What people are willing and able to buy at different prices Supply: What people are willing and able to sell at different prices Put them together…

The Magic Point: Market Equilibrium Market Equilibrium: The price and quantity (amount) that will exist in a market

The Magic Point: Market Equilibrium Exists where Supply = Demand

Practice: Draw the market for shoes

What if the price is lower? Shortage: Good is cheap so lots of people want it There is not enough to satisfy the quantity demanded!

What if the price is higher? Surplus: Good is expensive so fewer people want it There is too much quantity supplied

How does the Market Equilibrium Change? Supply or Demand has to change (shift)

Market Equilibrium in Action #1 Show me the market for Chick-fil-a. Label the Equilibrium point, price, and quantity.

Market Equilibrium in Action #1 Now imagine that a new report comes out saying that eating Chick-fil-a gives you the ability to fly. What happens to supply? What happens to demand?

Market Equilibrium in Action #1 Find the new equilibrium point, price, and quantity. Did the price of Chick-fil-a change? How? Did the quantity of Chick-fil-a change? How?

Another Example (on your own) #2 Draw the market for headphones. Label the original equilibrium price and quantity. Tell me what happens to equilibrium price and quantity of headphones when your income goes up. Use a graph to show me.

One last example #3 Draw the market for pumpkins. Label the original equilibrium price and quantity. Tell me what happens to equilibrium price and quantity of pumpkins when a disease kills half of the pumpkins. Use a graph to show me.

The Pearl Market