1. SUBSIDIES:
Q: What happens to supply if the
government GIVES you money to produce?
A: Supply will increase

2. Government Regulation “Hurts” Supply
Q: What happens to the supply of candy in school stores when the government regulates food in schools?
A: There is less candy

3. Market Entry: What happens when new businesses enter the market?Q:
What happens when new businesses enter the market? A:
There is more supply

4. Future Expectations
Q: What will suppliers do if they THINK prices will change in the future?
A: They will adjust their supply TODAY.
Explanation: If prices are low on Black Friday, Best Buy will “hide” their inventory and save it for when prices go back up. Thus…the long lines!

5. So What Happens When Suppliers and Demanders Meet?
They Will Determine the
Prices of Goods and Services

6. Equilibrium S D E Price Quantity
the point on the supply and demand curve where both suppliers and demanders agree on the price and quantity
there is no waste
there is no shortage S D E
Price
Quantity
Equilibrium

7. What Happens if Prices Are Set Above or Below Equilibrium?
Disequlibrium:
shortages causing excess demand and frustration
surplus leaving excess supply and loss for suppliers S D E
Price
Quantity
Disequilibrium
Excess Supply
Disequilibrium
Excess Demand
What Happens if Prices Are Set Above or Below Equilibrium?

8. Why would prices ever be “set” by something other than equilibrium?
Government Interventions S D E
Price
Quantity
Minimum Wage
Why would prices ever be “set” by something other than equilibrium?
When it would benefit the public
ex: minimum wage $7.40

9. Minimum Wage an example of a price floor
designed to provide a “liveable” wage for all workers
may cause a shortage of jobs and excess demand for work

10. Rent Control (New York)S D E
Price
Quantity
an example of a price ceiling
designed to provide housing for the “middle class” in high rent neighborhoods
causes a shortage of housing and excess demand for housing
Rent
Control

11. What about plumbers, teachers, police officers,
nurses or artists? Don’t they get to live in New York too?

12. What Happens If One of the Curves Shifts Away From Equilibrium?
The market will always push back toward equilibrium.

13. Conclusion: Supply and Demand
In a free enterprise economy, prices are determined by supply and demand
Price will cause a change in the quantity supplied or demanded
Other factors will cause a total change in supply or demand at every price
The level of responsiveness to price is called elasticity
If the government steps in to control price, there will be shortages and surpluses