How supply and demand create balance in the marketplace

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Presentation transcript:

How supply and demand create balance in the marketplace Prices How supply and demand create balance in the marketplace

Vocabulary Price Surplus Shortage Market equilibrium Excess demand Excess supply Price floor Price ceiling Adam Smith John Keynes Karl Marx

Did you know? In the oil crisis of the 1970’s people argued about how the gas rationing should be allocated. Should fuel efficient vehicles receive fewer coupons then gas-guzzling models? Should western states receive more because they travel longer distances than Eastern states? What about families sharing one car?

Price Rationing Price rationing is the process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied.

Price Rationing A decrease in supply creates a shortage at P0. Quantity demanded is greater than quantity supplied. Price will begin to rise. D > S = Shortage

Alternative Rationing Mechanisms A black market is a market in which illegal trading takes place at market-determined prices.

Chapter 6.2 The Price System A Work

Equilibrium and Disequilibrium Equilibrium- the point at which quantity demanded and quantity supplied are equal. Disequilibrium- describes any price or quantity not at equilibrium

Around “m.e.” Shortage- quantity demanded exceeds quantity supplied Surplus-quantity supplied exceeds quantity demanded

Review 1. What is total revenue? The amount a company receives for selling goods and services 2. What is a shortage? Demand > Supply 3. What is market equilibrium? The point in which market demand equals market supply

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