1. Chapter 6 Prices Bring Markets to Balance
Market Price: The price that willing consumers pay to a willing producer for the sale of a good or service.
Market Price is found by looking at consumer and producer interactions.
Consumers send signals to producers about whether a product is priced too high or too low by how much they buy of that product.

2. What Happens When the Price isn’t “Right”?
Disequilibrium: Formed when market price is set above or below the equilibrium price
Leads to excess demand or excess supply
Excess Supply – Supply exceeds demand. Price is too high
Excess Demand – Demand exceeds supply. Price too low
Surplus
Shortage

3. Excess Supply ---> Surplus
Excess surplus
To get back to equilibrium, price would need to go down
insert think pair share slide before this

4. Excess Demand ---> Shortages
To get back to equilibrium, price would need to rise

5. What are the 3 questions that need to be asked to figure out the changes in equilibrium prices?
Does the event affect demand, supply, or both?
Does the event shift the demand or supply curve to the right or left?
What is the new equilibrium price and quantity?
-How have they changed as a result of the event?

6. How Price is Affected by Demand Shift
How does the price get affected when demand shifts?
Demand increases & Price increases
Assume supplier increase supply or there would be a shortage
Demand decreases & Price decreases
Assume supplier decreases supply or there would be a surplus
New market

7. How Price is Affected by Supply Shift
How does the price get affected when supply shifts?
Supply increases & Price decreases
Assume consumers buy more or there would be a surplus
Supply decreases & Price increases
Assume consumers buy less or there would be a shortage

8. What if both demand & supply shift?

9. What do the demand & supply shifts tell us about the market?
Changes in prices ….
Tells producers how much to produce
Tells producers how much to charge
Shows buyer’s interest (demand) for a product
Prices give incentives---> encourages producers to produce more to make a profit
Allows markets to adjust to changing conditions
Able to respond to global issues
able to use resources efficiently

10. What Happens when the Government is Involved?
The government will get involved when it believes prices are too low.
Government affects prices:
Price Floor = setting a MINIMUM price
Example: minimum wage
It can be difficult to stop government interference due to political influences from those who it benefits.

11. What Happens when the Government is Involved?
The government will get involved when it believes prices are too high.
Government affects prices:
Price Ceilings = setting a MAX price
Example: Rent Control for Apartments
It can be difficult to stop government interference due to political influences from those who it benefits.

12. Black Markets
Black markets: an illegal market where goods are traded at prices or quantities higher than those set by law.
They are usually created in response to government controls that can create shortages or surpluses