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Equilibrium When Supply Met Demand.

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Presentation on theme: "Equilibrium When Supply Met Demand."— Presentation transcript:

1 Equilibrium When Supply Met Demand

2 Demand Review What is the definition of demand?
What is the Law of Demand? What does the demand curve look like?

3 Demand - Down Price Quantity D The demand curve is downward sloping

4 Supply Review What is the definition of supply?
What is the Law of Supply? What does the supply curve look like?

5 Supply - Up Price Quantity S The supply curve is upward sloping

6 Prices Consumers want to minimize costs
Producers want to maximize profits Prices are determined where supply meets demand. The point where the supply curve hits the demand curve is called EQUILIBRIUM.

7 When Supply Met Demand Price Quantity D S

8 Market Equilibrium Equilibrium Price
The price where quantity supplied = quantity demanded Equilibrium Quantity The quantity supplied and demanded at equilibrium price Where is it??

9 “X” Marks the Spot! S Price D Quantity
Equilibrium price & quantity are determined by where supply meets demand Price Quantity D S Peq Qeq

10 Changes in Equilibrium
Shifts in the supply and demand curve cause equilibrium to change This causes an increase/decrease in equilibrium price and/or an increase/decrease in equilibrium quantity.

11

12 Increase in Demand Price D2 D1 Quantity
INCREASE in demand shifts in the demand curve to the RIGHT Price Quantity D1

13 Decrease in Demand Price D1 D2 Quantity
DECREASE in demand shifts in the demand curve to the LEFT Price Quantity D1 D2

14 Why Demand Shifts: Determinants of Demand
Income Tastes and Preferences Substitute Goods Complementary Goods Weather Number of Buyers Expectations

15 INCREASE in supply shifts the supply curve to the RIGHT
Price Quantity S1 S2 INCREASE in supply shifts the supply curve to the RIGHT

16 DECREASE in supply shifts the supply curve to the LEFT
Price Quantity S1 DECREASE in supply shifts the supply curve to the LEFT

17 Why Supply Shifts: Determinants of Supply
Technology/Productivity Cost of Inputs/Factors of Production Number of Sellers Producer Expectations Government Price of Related Goods Weather/Natural Disasters

18 Graphing Practice #1: Increase in Demand
Demand increases Peq and Qeq increases Price Quantity D1 S Peq2 Qeq2 Peq1 Qeq1

19 Graphing Practice: #1 on Wksht
Demand increases Decrease in Supply Peq increases Change in Qeq can’t be determined D2 Price Quantity D1 S Peq2 Peq1 Qeq1

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