1. Combining Supply & Demand Balancing the Market -Combining the supply and demand schedules will create a balance. -Equilibrium is the point where supply & demand meet. -The market is stable at the equilibrium price. -To graph equilibrium combine the supply and demand graphs where they intersect is the equilibrium price. Disequilibrium -Occurs when quantity supplied and quantity demanded are not equal. -Excess demand occurs when quantity demanded is more than the quantity supplied. -Excess Supply occurs When the quantity Supplied is more than Quantity demanded. Price Ceilings -a maximum price that can be legally charged for a good or a service. -these goods are seen by government As ‘essential’. -rent control is an example of how government tried to prevent inflation in housing Price Floors -a minimum price for a good or service. -minimum wage is the minimum price an employer can pay a wage worker. -some commodities receive a price floor by state governments – milk.

2. Shifts in Supply Cause: Government taxes product Effect: Lower price of consumer good Effect: A larger or smaller quantity of consumer good produced and consumed Effect: Higher price of consumer good Cause: change in price of a substitute or complement producer good Cause: Change in technology Cause: Reduced cost of production Cause: Increased cost of factors of production used to make product [steel or labor in a car]

3. Shifts in Demand Cause: Advertisements create a need or desire for a good/service. Effect: the equilibrium price and the equilibrium quantity increase Effect: When a fad Passes, excess demand Turns into excess supply End of fad restores Original price Effect: Lack of enough goods to Satisfy demand raises prices & causes shortages Cause: Lower Prices Increase demand

4. Incentives to both buyer & sellers Signals that give producers and consumers information about the market Flexibility Rationing of goods can occur Price based System Centrally Planned System System is ‘free;’ it costs nothing to administer Great diversity of goods & services Black markets can arise Because goal is to distribute wealth evenly, no incentives or signals to buyers or sellers. System is not flexible because determined by government Shortages can occur Requires large bureaucracy to run Fewer choices of goods