Presentation on theme: "Interaction of supply and"— Presentation transcript:
1Interaction of supply and Chapter 6Interaction of supply andDemandDefinitionsMarket Equilibrium where supply=demandMarket price The price at which supply=demandDemand and supply schedule gives you the price and quantity supplied and quantity demanded.
2Demand and supply schedule pricedemandsupply$10.002001000$8.00400800$6.00600$4.00$2.00Does the above demand and supply schedule follow the laws of demand and supply?What is the equilibrium price in the above schedule?What is the equilibrium quantity in the above schedule?
3priceQuantity demandQuantity supplied$2.001000200$4.00800400$6.00600$8.00$10.00Demand and supply curves are graphic representations of demand and supply schedules
4Shortage- quantity demanded is greater than quantity supplied Surplus quantity supplied is greater than quantity demandedText page 168 Holiday toys
5Change in demand and equilibrium price Disequilibrium –When supply and demand are not in balancedemand supply equilibrium demand supply equilibriumprice priceorthenorthen
6priceQuantitydemandedSupplies$10.002001000$8.00400800$6.00600$4.00$2.00If demand increases by 200 units at each price level and supply remains constant what happens to equilibrium price?Exit exercise page 172 text
7Competition- What is your definition of competition? Competitive pricing- goals maximizing profits and luring customers away from rival producers. Are their benefits to the consumer as well?Characteristics of a price systemIt is neutral-does not favor producer or consumer , free interaction in the market, consumers want low prices, producers want high prices.Market driven , no central planning, price system runs itself, any exceptions?It is flexible- when market conditions change, prices can respond quicklyIt is effiicient, producers use resources to produce the goods based on profit motive.
8Price motivates both consumers and producers Producers- expectation of profits or possibility of losses motivates producers to enter or leave a market.Consumers- lower prices encourage consumers to buy, Higher prices discourage consumers form buying. How do producers encourage consumers to buy? If price of a product drops there may be a surplus in the market, If prices rise there may be a shortage in the market. Can producers create shortages? Examples.
9Price ceilings – Establish the maximum price sellers may charge for a good or service. Set below equilibrium to keep prices from rising. may result. Example rent Control, no incentive to build additional apartments or to maintain existing apartments.
10Price floors-minimum price a consumer must pay for a goods/service Keep prices from falling. Minimum Wage is a price floor.
12What cost $1. 00 in 1938 would cost $15. 13 in 2008 What cost $1.00 in 1938 would cost $15.13 in Also, if you were to buy exactly the same products in 2008 and 1938, they would cost you $1.00 and $0.07 respectively.
13Rationing- is a system in which government allocates goods and services using other factors instead of price. Can result in a black market, Rationing World War II Page 183Rationing devicesSeniorityFirst come first serveFavoritismForcePriceThe government at certain times in history rationed goods. Example-Rationing can be unfairSpecial treatment to some groupsExpensive, creates black markets
14Alfred MarshallSupply and demand must be studied togetherFirst to use graphs in the study of economicsThe concept of elasticityNeed to do poverty studies