Download presentation

Presentation is loading. Please wait.

Published byUnique Hobbins Modified over 4 years ago

1
Supply and Demand: Market Equilibrium

2
Equilibrium When supply = demand, there is equilibrium in the market Equilibrium creates a single price and quantity for a good/service

3
P Q S D p q Market Equilibrium

4
P Q S D p q D1D1 p1p1 q 1 Increase in Demand If demand increases then price increases and quantity increases D.: P & Q Changes in equilibrium

5
P Q S D1D1 p1p1 q1q1 D p q Decrease in Demand If demand decreases then price decreases and quantity decreases D.: P & Q Changes in equilibrium

6
P Q S D p q Increase in Supply If supply increases then price decreases and quantity increases S.: P & Q S1S1 p1p1 q1q1 Changes in equilibrium

7
P Q S D p q Decrease in Supply If supply decreases then price increases and quantity decreases S.: P & Q S1S1 p1p1 q1q1 Changes in equilibrium

8
Simultaneous Changes in Supply and Demand If supply and demand both increase then price is indeterminate, but quantity definitely increases S & D.: P ? & Q

9
P Q S D p q Simultaneous Increase in Supply & Demand S & D.: P ? & Q S1S1 p1p1 q1q1 D1D1 q2q2

10
Simultaneous Changes in Supply and Demand If supply and demand both decrease then price is indeterminate, but quantity definitely decreases S & D.: P ? & Q

11
P Q S D p q Simultaneous Decrease in Supply & Demand S & D.: P ? & Q S1S1 p1p1 q1q1 D1D1 q2q2

12
Simultaneous Changes in Supply and Demand If supply decreases while demand increases, then price definitely increases while quantity is indeterminate S & D.: P & Q ?

13
P Q S D p q Decrease in Supply w/ Simultaneous Increase in Demand S & D.: P & Q ? S1S1 p1p1 q1q1 D1D1 p2p2

14
Simultaneous Changes in Supply and Demand If supply increases while demand decreases, then price definitely decreases while quantity is indeterminate S & D.: P & Q?

15
P Q S D p q Increase in Supply w/ Simultaneous Decrease in Demand S & D.: P & Q? S1S1 p1p1 q1q1 D1D1 p2p2

16
Disequilibrium If price occurs at some point where supply and demand are not =, then disequilibrium exists. If the price is higher than the equilibrium price, then a surplus (Q s >Q D ) occurs If the price is lower than the equilibrium price, then a shortage occurs (Q s <Q D )

17
P Q S D pepe qeqe Market Disequilibrium (Price, p x, above Equilibrium Price, p e ) pxpx qsqs qdqd If price is p x, then q d < q s.: surplus exists (surplus = q s – q d )

18
P Q S D pepe qeqe qdqd qsqs If price is p x, then q s < q d.: shortage exists (shortage = q d – q s ) pxpx Market Disequilibrium (Price, p x, below Equilibrium Price, p e )

19
Causes of Disequilibrium Price floor – a minimum price for a good/service or resource determined outside of the market –Ex. Minimum wage Price ceiling – a maximum price for a good/service or resource determined outside of the market –Ex. Concert tickets sold by Ticket-master

20
P Q S D pepe qeqe Effective Price Floor (ex. Minimum wage in competitive unskilled labor market) p mw qsqs qdqd If price floor is effective, then q d < q s.: surplus labor exists

21
P Q S D pepe qeqe qdqd qsqs If price ceiling is effective then q s < q d.: ticket shortage exists ptpt Effective Price Ceiling (ex. Single price for admission to a popular concert )

22
Conclusion Markets work best when supply and demand determine the price of goods/services or resources. When forces other than supply and demand determine the price of goods/services or resources, surpluses and shortages result. Over time, the forces of supply and demand undermine artificial price controls –Ex. Black markets, ticket scalping, undocumented workers

Similar presentations

OK

Equilibrium Price, Equilibrium Quantity and the Interrelation of Markets.

Equilibrium Price, Equilibrium Quantity and the Interrelation of Markets.

© 2018 SlidePlayer.com Inc.

All rights reserved.

To make this website work, we log user data and share it with processors. To use this website, you must agree to our Privacy Policy, including cookie policy.

Ads by Google