Putting Supply & Demand Together

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Presentation transcript:

Putting Supply & Demand Together Econ Alive Chapter 6 Putting Supply & Demand Together

Equilibrium Price Price at which Quantity Demanded and Quantity Supplied are equal In the real world, Demand and Supply work together

Changes in Demand or Supply Demand and Supply can still change! Changes in Supply Key Words: Buyers/Consumers Determinants: Population Income of Consumers Change in Consumer Tastes Price of Substitutes Price of Complementary Goods Consumer Expectations Key Words: Sellers/Suppliers/ Producers/Manufacturers Determinants: Price of Inputs # of Firms in the Industry Business Taxes/Government Policy Technology Producer Expectations Natural Disaster/Major Event

Shifts in Equilibrium Price When Demand or Supply changes, Equilibrium price changes

Increases Equilibrium Price & Quantity Increase in Demand

Decrease in Equilibrium Price and Quantity Decrease in Demand

Increases Equilibrium Price Decreases Equilibrium Quantity When Supply Decreases

Equilibrium Price Decreases Equilibrium Quantity Increases When Supply Increases

Shortage Situation in which quantity demanded is greater than quantity supplied

Surplus Situation in which quantity supplied is greater than quantity demanded

Use the Force! (of the Market) We don’t like shortages or surpluses! The market wants to correct itself and adjust the price to get back to equilibrium!

Price Controls Government gets involved Creates: To help consumers? Protect interest groups? Creates: Price Ceilings Price Floors

Price Ceiling Legal maximum price that may be charged for a good or services Often creates shortages

Price Floor Legal Minimum price that may be charged for a good or service Often creates surpluses

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