Date: November 28, 2011 Topic: Combining supply and demand. Aim: How did supply and demand meet? Do Now: How do these owners of Five Guys Franchises have.

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Date: November 28, 2011 Topic: Combining supply and demand. Aim: How did supply and demand meet? Do Now: How do these owners of Five Guys Franchises have to cope with potential conflict?

Laws of Supply and Demand. ► The law of demand is centered around…? ► The law of supply is centered around …? PRICES

BALANCE TO THE FORCE!

BALANCE

► The point of balance between price and quantity. ► At Equilibrium, the market for a good is stable.

When supply and demand meet in the marketplace, a market price is created. This is equilibrium price. The best way to visualize equilibrium price to place the supply and demand curves in the same diagram.

► Equilibrium in a market occurs when the price balances the plans of buyers and sellers. ► Equilibrium in a market occurs when the price balances the plans of buyers and sellers. ► It sets the value of the product. ► Equilibrium price is represented by the point where the demand and supply curves intersect.

► When the quantity supplied is not equal to quantity demanded in a market. ► The market price of quantity supplied is anywhere but at the equilibrium.

► Quantity demanded is more than the quantity supplied. ► The actual price in a market is below the equilibrium price ► A low price encourages buyer and discourages sellers.

► Quantity supplied exceeds quantity demanded. ► If the price is too high, then the market will face a problem of excess supply.

Price Ceiling: Maximum price that can be legally charged for a good. (Considered “essential” & become too expensive) Price Floor: Minimum price for a good or service.

► Motivated by a desire to help poor households by cutting housing costs. ► Reduces quantity/quality of housing. ► At a low price, seems inexpensive. ► However price ceiling increases quantity demanded but decreases quantity supplied. AS A PRICE CEILING

► Employer can pay a worker for an hour of labor. ► Federal government sets a base level for the minimum wage. ► If the minimum wage is set above the market equilibrium wage rate, decrease in employment. ► Excess supply of labor. AS A PRICE FLOOR

SUMMARY: How does supply and demand create balance in the marketplace?

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