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 DemandedQuantity Supplied$101040$81535$625$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 awaySurplus: 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 demandIncomeConsumer tasteConsumer expectationsMarket sizeSubstitutesComplements
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 priceThe 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 priceThe graph looks like this:
13 Change in Supply and Equilibrium Price Review: the 6 factors that cause a change in supplyInput costsProductivityTechnologyGovernment actionProducers expectationsNumber 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 risesThe 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 decreasesThe graph looks like this:
16 In Summary… Then… OR If demand decreases Supply increases Equilibrium fallspriceOR
18 Questions1. 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?