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Supply + Demand

Equilibrium = the point of balance between price and quantity At equilibrium the market for a good is stable You MUST find the balance or else!! We need a stable Market.

Lets Graph this Info. Price of a slice of pizza Quantity Demanded Quantity Supplied $ $ $ $ $ $

To find equilibrium you must look for the price at which quantity supplied equals quantity demanded Quantities supplied and demanded will be equal at only one price and one quantity Price of a slice of pizza Quantity Demanded Quantity Supplied $ $ $ $ $ $

On a graph, equilibrium can be found at the point where the supply curve crosses the demand curve

Disequilibrium = when price and quantity are not at equilibrium, when quantity supplied is not equal to quantity demanded Two types of Disequilibrium – Shortage – Surplus

Shortage = when quantity demanded is more than quantity supplied When the actual price in a market is below the equilibrium price, you have excess demand

Surplus = when quantity supplied is more than quantity demanded When the actual price in a market is above the equilibrium price, you have excess supply

Whenever the market is in disequilibrium and prices are flexible, market forces will push the price toward equilibrium

What can cause a change in the Equilibrium Price? A Shift of the Demand Curve AND A Shift of the Supply Curve Equilibrium is a “moving target” that changes as market conditions change

Changes in Demand Price Quantity D1 Supply P1 Q2 Price Quantity D1 Supply P1 Q1 D3 Q3 P3 D2 Q1 P2 A Rightward Shift in DemandA Leftward Shift in Demand

Changes in market supply Price Quantity S1 Q1 Price Quantity D1 S1 P1 Q1 Q3 P3 D2 Q2 P1 A Rightward Shift in Supply A Leftward Shift in Supply S2 P2 S3

PRACTICE!!!! The Market is for BUTTER in each of the following cases? You must SHOW whether demand or supply have shifted and in which direction…. 1.A rise in the price for bread (bread & butter are complimentary goods) 2.Sellers expect rise in the price of butter in the near future 3.A rise in the price of margarine 4.A tax on butter production 5.A rise in the demand for yogurts (butter & yogurt are substitutes) 6.The invention of a new but process for removing all cholesterol from butter