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Combining Supply and Demand
Prices Combining Supply and Demand
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Uh oh… Buyers (consumers) always want to pay the lowest possible price
Law of Demand Sellers (suppliers) hope to sell at the highest possible price Law of Supply
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The “Invisible Hand” The free market system makes certain that…
consumers can buy the products they want sellers make enough profit to stay in business sellers respond to changing needs and tastes of the consumer.
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Market Equilibrium The point at which quantity demanded and quantity supplied is the same. Market Equilibrium! Market clearing price!
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Combining Demand & Supply Schedules
Price Quantity of Pizza Slices Demanded $5 100 $4 200 $3 300 $2 400 $1 500 Price Quantity of Pizza Slices Supplied $5 500 $4 400 $3 300 $2 200 $1 100
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Market Equilibrium At this equilibrium price, buyers will purchase exactly as much of the product as firms are willing to sell. Buyers willing to purchase goods at equilibrium price will find ample supplies on store shelves. Sellers willing to sell at equilibrium price will find enough buyers for their goods.
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Chart Results
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Disequilibrium If the market price or quantity supplied is anywhere but at the equilibrium price, the market is in disequilibrium
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Excess Demand (Shortage)
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Excess Demand (Shortage)
Light Supply Heavy Demand
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Excess Supply (Surplus)
D S D S
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Excess Supply (Surplus)
Light Demand Heavy Supply
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Market Equilibrium Quantity Supplied = Quantity Demanded
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Disequilibrium
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