1. Combining Supply and Demand
Prices
Combining Supply and Demand

2. 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

3. 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.

4. Market Equilibrium
The point at which quantity demanded and quantity supplied is the same.
Market Equilibrium!
Market clearing price!

5. 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

6. 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.

7. Chart Results

8. Disequilibrium
If the market price or quantity supplied is anywhere but at the equilibrium price, the market is in disequilibrium

9. Excess Demand (Shortage)

10. Excess Demand (Shortage)
Light Supply
Heavy Demand

11. Excess Supply (Surplus)D S D S

12. Excess Supply (Surplus)
Light Demand
Heavy Supply

13. Market Equilibrium
Quantity Supplied = Quantity Demanded

14. Disequilibrium