1. 6-1: Seeking Equilibrium: Demand and Supply

2. The Interaction of Demand and Supply
When buyers and sellers interact, the market moves toward market equilibrium: when the quantity demanded and the quantity supplied at a particular price are equal

3. The Interaction of Demand and Supply (continued)
Equilibrium price: the price at which the quantity demanded and the quantity supplied are equal

4. Market Demand and Supply Schedule
Price per salad ($)
Quantity Demanded
Quantity Supplied
$10 10 40 $8 15 35 $6 25 $4 $2

5. Market Demand and Supply Schedule (continued)
How does the market demand and supply schedule illustrate the laws of demand and supply?
It shows that consumers are willing to buy more goods at lower prices while producers are willing to offer more goods for sale at higher prices.

6. Graph the Market Demand and Supply Schedule
Label the demand curve as D1 and the supply curve as S1. Label the equilibrium point.

7. Reaching the Equilibrium Price
Markets do not always function at equilibrium right away
Surplus: the result of quantity supplied being greater than quantity demanded

8. Reaching the Equilibrium Price (continued)
Shortage: the result of quantity demanded being greater than quantity supplied

9. Surplus, Shortage, and Equilibrium
Identify equilibrium, surplus, and shortage on a graph

10. Change in Demand and Equilibrium Price
Review: the 6 factors that cause a change in demand
Income
Consumer taste
Consumer expectations
Market size
Substitutes
Complements

11. Shifts in the Demand Curve
When a change in consumer taste causes a decrease in demand the curve shifts to the left and there will be a new equilibrium price
The graph looks like this:

12. Shifts in the Demand Curve (continued)
If a change in demand were to cause an increase in demand, the demand curve would shift to the right and there will be a new equilibrium price
The graph looks like this:

13. Change in Supply and Equilibrium Price
Review: the 6 factors that cause a change in supply
Input costs
Productivity
Technology
Government action
Producers expectations
Number of producers

14. Shifts in the Supply Curve
When there is a decrease in supply, the supply curve shifts to the left and equilibrium price rises
The graph looks like this:

15. Shifts in the Supply Curve (continued)
When there is an increase in supply, the supply curve shifts to the right and equilibrium price decreases
The graph looks like this:

16. In Summary… Then… OR If demand decreases Supply increases Equilibrium
falls
price OR

17. demand increases If
Equilibrium
price
rises
decreases
Supply
Then… OR

18. Questions
1. Why is the market always moving toward equilibrium?

19. 2. Between 2003 and 2005 there was a huge growth in the market for premium blue jeans priced at $200 or more. Then in the summer of 2005 major department stores cut the price on jeans and these jeans were also sold online. Use the economic concepts from this section to describe what happened in this market.

20. 3. There are 3 pizza parlors in your neighborhood and one of them closes. What will happen to the supply of pizza? How will that affect the equilibrium price of pizza?