Combining Supply and Demand

Equilibrium Equilibrium is the point where supply and demand come together Balance between price and quantity The market is good and stable

Market Disequilibrium Market price or quantity supplied is anywhere but at the equilibrium price the market is in a state called disequilibrium. There are two causes for disequilibrium: Excess of Supply Excess of Demand

Excess of Supply Excess supply occurs when quantity supplied exceeds quantity demanded.

Excess of Demand Excess demand occurs when quantity demanded is more than quantity supplied.

Price Floor A price floor is a minimum price, set by the government, that must be paid for a good or service. Can be setup above or below equilibrium Putting the floor above equilibrium is the preferred method.

Price Floor Above equilibrium Consumers don’t want to buy goods Suppliers will then supply more LAW OF SUPPLY

Price Ceiling A price ceiling is a maximum price that can be legally charged for a good. Can be setup above or below equilibrium Putting the ceiling below equilibrium is the preferred method

Price Ceiling Below equilibrium Creates more demand than at equilibrium. Supply will go down LAW OF DEMAND

Price of a slice of pizza Combined Supply and Demand Schedule Balancing the Market Interactions between buyers and sellers will always push the market back towards equilibrium. Price per slice Equilibrium Point Finding Equilibrium Price of a slice of pizza Quantity demanded Quantity supplied Result Combined Supply and Demand Schedule $ .50 300 100 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $.50 Slices of pizza per day 50 150 200 250 350 Supply Demand $2.00 $2.50 $3.00 150 100 50 250 300 350 Surplus from excess supply $1.00 250 150 Shortage from excess demand $1.50 200 Equilibrium Equilibrium Price a Equilibrium Quantity