Date: November 13, 2015 Topic: Combining Supply and Demand. Aim: How did supply and demand meet? Do Now: How did the documentary “Inside Job” impact your opinion of the economic industry (provide examples)?
Laws of Supply and Demand. The law of demand is centered around…? The law of supply is centered around …?
BALANCE TO THE FORCE!
BALANCE
The point of balance between price and quantity. At Equilibrium, the market for a good is stable.
When supply and demand meet in the marketplace, a market price is created. This is equilibrium price. The best way to visualize equilibrium price to place the supply and demand curves in the same diagram.
Equilibrium in a market occurs when the price balances the plans of buyers and sellers. It sets the value of the product. Equilibrium price is represented by the point where the demand and supply curves intersect.
When the quantity supplied is not equal to quantity demanded in a market. The market price of the quantity supplied is anywhere but at the equilibrium. THERE IS NO BALANCE!
Quantity demanded is more than the quantity supplied. The actual price in a market is below the equilibrium price A low price encourages buyer and discourages sellers.
Quantity supplied exceeds quantity demanded. If the price is too high, then the market will face a problem of excess supply.
Price Ceiling: Maximum price that can be legally charged for a good. (Considered “essential” & become too expensive) Price Floor: Minimum price for a good or service.
Rent control is an example of a price ceiling. Motivated by a desire to help poor/middle class households cut costs. Reduces quantity/quality of housing. This price ceiling increases quantity demanded but decreases quantity supplied.
Employers pay workers hourly for unskilled labor. Federal government (or state) sets a base level for the minimum wage. If the minimum wage is set above the market equilibrium wage rate, there will be a surplus of labor. Firms will employ fewer low skilled workers than they would at the equilibrium wage rate.
SUMMARY: How does supply and demand create balance in the marketplace?