1. Essential Question: How do Supply and Demand work together to form a picture of the economy as a whole?

2. Equilibrium The point where Q s = Q d

3. Disequilibrium Any point where Q s ≠ Q d

4. Individual Demand Curve The demand curve for one person; aka the quantity demanded at various prices for one person

5. Market Demand Curve The demand curve representing everyone in that particular market

6. Two different states of disequilibrium 1. Shortage:  An excess of demand  Where Q d > Q s Effects of a shortage:  Longer wait for consumers to get a good/service  Some consumers will have to go without

7. Two different states of disequilibrium 2. Surplus:  An excess of supply  Where Q s > Q d Effects of a surplus:  The goods/service of the producer will go to waste  Producers will want to make less or lower prices

8. How do we get back to equilibrium? From shortage to equilibrium:  Producers will notice the increased demand and will typically raise prices.  As prices rise, customers will buy less.  This continues over time until the market works its way back to a state of equilibrium

9. How do we get back to equilibrium? From surplus to equilibrium:  Producers will get tired of their good/service going to waste and will:  cut their prices and/or  produce less.  This continues over time until the market works its way back to a state of equilibrium

10. The point: Markets fluctuate, but tend toward a state of equilibrium. True only when prices are flexible  i.e., when they can easily change.

11. What happens when prices are not flexible? Price Ceiling  A maximum price that can be charged for a good/service  Ex: Rent Control Price Floor  A minimum price that can be charged for a good/service  Ex: Minimum wage & agricultural products

12. Check for understanding: 1. What can a price floor create in the market place? 2. What can a price ceiling create in the market place?