1. Why does the price change?
Bell Ringer
Item
When Price is Highest
When Price is Lowest
Why does the price change?
Bathing suits
Turkeys
Bicycles
Backpacks

2. Objectives
Explain how supply and demand create equilibrium in the marketplace.
Describe what happens to prices when equilibrium is disturbed.

3. Introduction
Crash Course in Economics – “Supply and Demand”

4. What is Equilibrium?
Equilibrium  the point at which the demand for a product or service is equal to the supply of that product or service
When a market reaches equilibrium, it is stable.

5. Disequilibrium
If the market price or quantity supplied is anywhere but at equilibrium, the market is said to be at disequilibrium.
Disequilibrium can produce two possible outcomes:
Shortage— Demand for a good is greater than supply Prices rise.
Surplus— Supply for a good is greater than demand Prices drop.
Checkpoint Answer: A surplus
What market condition might cause Little Caesar's to throw out pizza at the end of the day?
A: Surplus 5

6. Shortage: If D>S, then P ↑ Surplus: If S>D, then P ↓
Answers: The shortage is 100 slices of pizza.

7. Toy Crazes – Extreme Shortages

8. How Supply and Demand Affect Equilibrium
Changes in supply and demand cause prices to go up and down, which disrupts the equilibrium for a particular good or service.
In a free market, price and quantity will tend to move toward equilibrium whenever they find themselves in disequilibrium.
What did Adam Smith call this tendency?

9. Shortages
Surpluses
Shortages cause a firm to raise its prices. Higher prices cause the quantity supplied to rise. High prices cause the quantity demanded to fall. EQUILIBRIUM !
Surpluses cause a firm to drop its prices. Lower prices cause the quantity supplied to fall. Low prices cause the quantity demanded to rise. EQUILIBRIUM !

10. A “Moving Target” Equilibrium for most products is in constant motion.
Think of equilibrium as a “moving target” that changes as market conditions change.
As supply or demand increases or decreases, a new equilibrium is created for that product.

11. Equilibrium Cartoon
Working by yourself or with a partner, create a three to five panel comic strip that illustrates how extreme demand for a good (like Tickle-Me-Elmo) returns from a shortage to equilibrium.

12. Key Terms
equilibrium: the point at which the demand for a product or service is equal to the supply of that product or service
disequilibrium: any price or quantity not at equilibrium
shortage: when quantity demanded is more than quantity supplied
surplus: when quantity supplied is more than quantity demanded

13. Supply and Demand Game Teams of 3-4 One question per team at a time.
One point for correct answer, one point for correct explanation.
Winning team gets extra credit!
Answers: The shortage is 100 slices of pizza.

14. Equilibrium Quiz
1. When quantity demanded is more than quantity supplied. 2. When quantity supplied is greater than quantity demanded. 3. The point at which quantity demanded and quantity supplied are equal.

15. Equilibrium Quiz
4. When there is a surplus of a good, what happens to the price? 5. What happens to the market for marijuana when the DEA makes a huge bust on the border? 6. What happens to the market for gasoline when the economy enters into a recession?

16. Bell Ringer
Who do you think benefits the most from an increase in the minimum wage?
Who benefits the least from (or is hurt by) an increase in the minimum wage?

19. Objectives
Identify two ways that the government intervenes in markets to control prices.
Analyze the debate surrounding the federal minimum wage.

20. Price Ceiling
While markets tend toward equilibrium on their own, sometimes the government intervenes and sets market prices. Price ceilings are one way the government controls prices.
Price ceilings- the maximum price that can legally be charged for a good or service
EXAMPLE: Tortillas in Mexico
“Tortilla Price Stabilization Pact”
In 2007, President Calderon created an agreement between the Mexican Federal Government and several tortilla companies in Mexico to set a price ceiling for corn tortillas (8.50 pesos/kg)

21. Price Floors A price floor is a minimum price set by the government.
The minimum wage is an example of a price floor.
Minimum wage affects the demand and the supply of workers.
Answer: $6.60.

22. Minimum Wage What is the current federal minimum wage? $7.25
What is the minimum wage in Arizona?
$8.05
What do you think the minimum wage should be?

24. Minimum Wage Argument
Obama’s 2014 State of the Union:
“The Truth About the Minimum Wage”:
“Raise the Minimum Wage to $15/Hour”:

25. Minimum Wage Argument
How does a minimum wage increase hurt businesses?
Increased labor costs
Increased prices (less competitive)
What are some ways businesses can respond to a minimum wage increase?
Reduce workers
Less training
Less health care benefits
Raise prices
Live with fewer profits… yeah, right!

26. Minimum Wage Argument
How does a minimum wage increase help businesses?
More competitive workforce
More productive workers
More skilled/educated workers
Increased wages = increased spending

27. Minimum Wage Argument
What are some consequences for unemployment? For under-payment?
Which is a greater problem: unemployment or underpayment?

28. Bell Ringer
List three ways that raising the minimum wage hurts the economy.
List three ways that raising the minimum wage helps the economy.

29. Objectives Identify the many roles that prices play in a free market.
Describe the role of the “black market” in the global economy.

30. Introduction What roles do prices play in a free market economy?
In a free market economy, prices are used to distribute goods and resources throughout the economy.
Prices play other roles, including:
Serving as a language for buyers and sellers
Serving as an incentive for producers
Serving as a signal of economic conditions

31. The Role of Prices
Prices provide a standard of measure of value throughout the world.
Prices act as a signal that tells producers and consumers how to adjust.

32. The Role of Prices
Prices tell buyers and sellers whether goods are in short supply or readily available.
BP gas station, immediately following Hurricane Katrina

33. The Role of Prices
The price system is flexible and free, and it allows for a wide diversity of goods and services.

34. The Black Market
Since the government cannot track all of the goods passing through the economy, people sometimes conduct business on the black market in order to bypass rationing and legal restrictions.
Choco Pies in North Korea:

35. What are the top three black market items in the world?
Source: NBC News, 2008

36. The Black Market
What countries do you think have a large black market?
Are there particular types of regions that we associate with the black market? Why?

37. “System D” Article
System D is a new term being used by some economists to describe the black market.
This term comes from the French word, débrouillard, which refers to responding to challenges with an ability to think fast, to adapt, and to improvise when getting a job done.