Combining Supply & Demand 6.1 Delaney Felix Poe - 5

Balancing the market Demand is how much someone is willing to pay for an item Demand is how much someone is willing to pay for an item Supply is how much producers are willing to sell Supply is how much producers are willing to sell The two of these should bring the market to a good balance, called equilibrium The two of these should bring the market to a good balance, called equilibrium

Equilibrium * Equilibrium – the point of balance between price and quantity * Equilibrium – the point of balance between price and quantity At equilibrium, the market for a product should be stable At equilibrium, the market for a product should be stable

Disequilibrium * Disequilibrium is when the market is at any state except equilibrium. * Disequilibrium is when the market is at any state except equilibrium. REAL LIFE REAL LIFE - During the holidays there is always an “ it ” item to have. Usually these run out because every single family wants one. This is an example of disequilibrium

Excess Demand * Excess demand - When quantity demanded is more than the quantity that is supplied * Excess demand - When quantity demanded is more than the quantity that is supplied As long as this happens, supplies will continue to raise the price As long as this happens, supplies will continue to raise the price

Excess Supply * Excess supply - When quantity supplied exceeds what is demanded. * Excess supply - When quantity supplied exceeds what is demanded. When there is excess supply, prices tend to lower continuously. When there is excess supply, prices tend to lower continuously. What else could we What else could we expect to pay less than fifty cents for?

Government Intervention * Price ceiling – the maximum price that can legally be put on a product. * Price ceiling – the maximum price that can legally be put on a product. * Price floor – the minimum price that must be charged for an item. * Price floor – the minimum price that must be charged for an item

Rent Control REAL LIFE REAL LIFE * Rent control – an experiment on putting price ceilings on apartments. Rent control reduces quality and quantity of apartments, which ended up hurting the poor people that they were trying to help. * Rent control – an experiment on putting price ceilings on apartments. Rent control reduces quality and quantity of apartments, which ended up hurting the poor people that they were trying to help. Landlords used to be able to keep the defects of an apartment away from a possible tenant until after they moved in, and once the tenant noticed them the landlord was allowed to threaten to raise the price of their lease. Rent control ended this, letting tenants ask about defects without fearing the rent increases. Landlords used to be able to keep the defects of an apartment away from a possible tenant until after they moved in, and once the tenant noticed them the landlord was allowed to threaten to raise the price of their lease. Rent control ended this, letting tenants ask about defects without fearing the rent increases.

Quiz Which of the key terms ended up helping future tenants? Which of the key terms ended up helping future tenants? T/F Disequilibrium is when everything is in a good balance? T/F Disequilibrium is when everything is in a good balance? T/F Excess demand cause prices to fall? T/F Excess demand cause prices to fall? T/F Price floor is the most you can charge for a product? T/F Price floor is the most you can charge for a product? T/F Supply is how much people need of a product? T/F Supply is how much people need of a product?