1. The Price System ( Markets) ©2012, TESCCC Economics Unit 4, Lesson 1

2. Potential BuyersPotential Sellers Markets The interaction of buyers and sellers determines the price and quantity of most goods in a market system. ©2012, TESCCC

3. Buyers and sellers have opposite goals. Buyers want the lowest price. Sellers want the highest price. ©2012, TESCCC

4. Markets Draw Supply & Demand Demand Schedule $ QD 10.00 60 20.00 40 30.00 20 Supply Schedule $ QS 10.00 20 20.00 40 30.00 60 ©2012, TESCCC

5. Market D S $ EP 20 40 EQ Q 30 20 60 10 ©2012, TESCCC

6. With supply and demand both on graph, we now have a market. Market equilibrium – where quantity demanded and quantity supplied are equal ©2012, TESCCC

7. Based on 2 Assumptions 1.Everything in market has a price. 2.Price is best measure to answer the three basic economic questions. ©2012, TESCCC

8. Prices act as signals. Signals to adjust –Demand –Supply ©2012, TESCCC

9. Disequilibrium QS = QD This creates a shortage or a surplus. ©2012, TESCCC

10. Surplus A price above equilibrium creates a surplus. A surplus is when QS is greater than QD. ©2012, TESCCC

11. Surplus Excess Supply QS > QD D S P EP 20 40 EQ Q QD QS 30 ©2012, TESCCC

12. Shortage A price below equilibrium created a shortage. Shortage is when QD is greater than QS. ©2012, TESCCC

13. Shortage Excess Demand QD > QS D S $ EP20 40 EQ Q QS QD 10 ©2012, TESCCC