Combining Supply and Demand Chapter 6

 Price at which quantity supplied is equal to quantity demanded  Intersection of the demand and supply curves ◦ All free markets want to be at equilibrium ◦ Natural forces will cause a return to equilibrium when things get out of balance

$ S D Q E

 Disequilibrium – condition in which quantity supplied is not equal to quantity demanded  Shortage – quantity supplied is less than quantity demanded at a given price  Surplus – quantity supplied is greater than quantity demanded at a given price

 Increase S D $ Q E D2D2 E2E2

 Decrease $ Q S D D2D2 E E2E2

 Increase S D S2S2 $ Q E E2E2

 Decrease E E2E2 S S2S2 D $ Q

 Price Floor – minimum price that can legally be charged for a g/s ◦ Guarantee for the producer ◦ Creates a surplus  Price Ceiling – maximum price that can legally be charged for a g/s ◦ Protection for the consumer ◦ Creates a shortage

$ Q S D E Floor QsQs QDQD

Ceiling $ Q S D QSQS QDQD E

 Draw a market equilibrium graph for a hypothetical good or service  Explain a change in supply or demand  Tell what factor caused the change  Show the effects on the graph ◦ Use the blank half sheet ◦ Put your name on the paper ◦ Turn in before you leave today