1. + How are prices determined in our economy???
Consumers: Want to buy products at as low of a price as possible. +
Producers: Want to sell a product at as high of a price as possible.
The Result: A compromise price is reached that satisfies both consumers and producers. This price is called the Market Equilibrium.

2. Market Equilibrium
The price at which the quantity demanded by consumers is the same as the quantity supplied by producers.

3. Supply and Demand Determine Prices
Quantity supplied will Increase.
Quantity demanded will decrease.
If the price for the product increases, what will happen to the quantity supplied?
If price goes up, what happens on the quantity demanded?
The price that producers and consumers agree to.
Market Equilibrium Price
The quantity that consumers will demand, and producers will supply the same amount.

4. Surplus: A situation when the quantity supplied by producers is greater than the quantity demanded by consumers.
Surplus
Price
Quantity Demanded:
Quantity Supplied:

5. Market Equilibrium Price
Shortage: A situation when the quantity supplied by producers is less than the quantity demanded by consumers.
Market Equilibrium Price
Price is lowered
Shortage

6. Shortage To put it plainly: Surplus An increase in price causes a ….
A decrease in price causes a …
Shortage

7. Why are Diamonds so Expensive? Is it a SCAM?
Video!

8. Blood Diamond Video Clip

9. Leonardo DiCaprio says…
In order to keep diamonds expensive…
“Control the supply and keep the demand high.”
Supply low: “There’s an underground vault, where they keep all the stones off the market.”
Demand high: “Tell some poor sap he’s supposed to pay three month’s salary on a diamond engagement ring.”
They are not financing the war, but they’re making a situation that makes war very profitable
What is the shifter?

10. Why are diamonds so expensive???
Price S1
When the diamond company held diamonds off the market hoping that this would increase price, this decreased the supply.
Consumer tastes and preferences changed when diamonds were linked to marriage increasing demand.
The Quantity supplied decreased because of the rise in price.
Quantity demanded increased because of a rise in price.
Price 3
Price 2
Price 1 D1
Quantity
Quantity 1
Quantity 2
Quantity 3

11. Practice Price Changing
What would happen to the price of Oreos if milk goes on sale?
Step 1: Would this affect SUPPLY (selling) or DEMAND (buying)? (Think of the shifters)
Answer: Demand! (Buying; Cost of related good) It INCREASES!

12. Step 2
Is Supply being affected?
NO! (In our problems, EITHER supply will change OR demand will change. NEVER both, for the sake of keeping it simple.)
Demand
Supply
Price
Quantity

13. Step 3: GRAPH IT!
Price
Price 2
Price 1
Quantity1
Quantity2

14. Step 4. Figure out what happened to price and quantity
Using the graph, we can clearly see that price increased and quantity increased.
Demand
Supply
Price
Quantity

15. Practice Price Changing
What would happen to the price and quantity of cars if metals become more expensive?
Step 1: Would this affect SUPPLY (selling) or DEMAND (buying)? (Think of the shifters)
Answer: Supply! (Selling); Cost of inputs. More expensive to sell) It DECREASES!

16. Step 2
Is Demand being affected?
NO! (In our problems, EITHER supply will change OR demand will change. NEVER both, for the sake of simplicity.)
Demand
Supply
Price
Quantity

17. Step 3: GRAPH IT!
Price
Price 2
Price 1 Q1 Q2

18. Step 4. Figure out what happened to price and quantity
Using the graph, we can clearly see that price increased and quantity decreased.
Demand
Supply
Price
Quantity