The Price System (Markets) Economics Unit 4, Lesson 1 The Price System (Markets) Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from http://office.microsoft.com/en-us/images/ ©2012, TESCCC

The interaction of buyers and sellers Potential Buyers Potential Sellers Markets The interaction of buyers and sellers determines the price and quantity of most goods in a market system. Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from http://office.microsoft.com/en-us/images/ ©2012, TESCCC

Buyers and sellers have opposite goals. Buyers want the lowest price Buyers and sellers have opposite goals. Buyers want the lowest price. Sellers want the highest price. Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from http://office.microsoft.com/en-us/images/ ©2012, TESCCC

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

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

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

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

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

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

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

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

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

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