1. Unit 3: Supply and Demand
Chapter 6: Prices

2. Supply and Demand Meet
Equilibrium – the POINT where demand and supply come together
Here the market is stable
firms are satisfied with producing a certain quantity of goods at a certain price
customers are satisfied
with buying that same quantity of goods at that same price

3. Supply and Demand Meet Discovering equilibrium
on a combined supply and demand schedule
just look for the line where the same quantity exists for both supply and demand
make sure it’s the same line showing a single price

4. Supply and Demand Meet

5. Supply and Demand Meet Discovering equilibrium
on a combined supply and demand curve
just look for the place where the two lines intersect
follow the line down to discover the quantity
follow the line to the left to discover the price

6. Supply and Demand Meet

7. Supply and Demand Meet Market benefits
supply and demand can only ever meet at ONE point
firms will best know how much of a good to produce
firms will know best what price to charge
Customers will let it be known (consumer sovereignty)

8. Supply and Demand Meet Disequilibrium when the market isn’t balanced
Shortage
there is more demand for goods than what is produced
some customers are left unsatisfied
occurs when the price is too low
customers want a lot of those goods at that price
firms don’t make a lot of those goods for that price

9. Supply and Demand Meet Disequilibrium when the market isn’t balanced
Surplus
there is less demand for goods than what is produced
some goods are left on the shelves or thrown away (wasted)
occurs when the price is too high
customers don’t want a lot of those goods at that price
firms make a lot of those goods for that price

10. Government Actions Price ceiling the HIGHEST price that can be charged
it keeps the price from RISING to the natural point of equilibrium
so the ceiling must be below the natural point of equilibrium
Effects
firms don’t supply as much of the good as what is demanded
some customers don’t get the good (shortage)
some customers do get the goods at a bargain price

11. Government Actions

12. Government Actions Price floor the LOWEST price that can be charged
it keeps the price from FALLING to the natural point of equilibrium
so the floor must be above the natural point of equilibrium
Effects
firms supply more of the good as what is demanded
some goods are not bought and are wasted (surplus)
some firms do get to sell the goods at a higher price

13. Government Actions

14. Government Actions Price floor the LOWEST price that can be charged
examples
cigarette prices
milk prices
minimum wage