Unit 3 Microeconomics: Prices and Markets Chapters 6.1 Economics Mr. Biggs

Balancing the Market Comparing supply and demand schedules allows us to find common ground for the two sides of the market. For example, the number of bowls of Phở consumers are willing to buy and the number of bowls of Phở producers are willing to make. Defining Equilibrium Equilibrium - The point at which quantity demanded and quantity supplied are equal. Combining Supply and Demand

Graphing Equilibrium Equilibrium is the point where the demand curve crosses the supply curve. Disequilibrium Disequilibrium - Any price or quantity not at equilibrium. In other words, disequilibrium occurs when quantity supplied is not equal to quantity demanded in a market. Excess Demand Excess Demand - Occurs when quantity demanded is more than quantity supplied (also known as shortage). As long as there is excess demand, producers will continue to raise prices until the demand or supply curve shifts.

Excess Supply Excess Supply - Occurs when quantity supplied is more than quantity demanded (also known as surplus). Whenever the market is in disequilibrium and prices are flexible, market forces will push the market toward the equilibrium. Government Interventions Markets tend toward equilibrium, but in some cases the government steps in to control prices. Price ceiling - The maximum price that can be charged for a good or service. Price floor - The minimum price for a good or service.

Price Ceilings Under rent control, landlords find it difficult to make a profit so they build fewer apartments, convert older ones into offices, stores, or condominiums. Rent control - A price ceiling placed on rent. The Cost of Rent Control Under rent control, New York City had long waiting lists for apartments. Luck or bribery was often involved in finding a place to live. Landlords tended not want to fix routine problems because they were not making sufficient profit. Ending Rent Control Economists agree that the costs of rent control outweigh the benefits.

Price Floors A price floor is a minimum price that must be paid for a good or service. The Minimum Wage Minimum wage is a well known price floor and if the minimum wage is above the labor market equilibrium then the result is an excess of labor. Minimum wage - The minimum price that an employer can pay a worker for an hour of labor. The current federal minimum wage is below what the government sets as the bare minimum necessary to support a couple with one child.

Price Supports in Agriculture Congress abolished price supports for United States agriculture in Price supports are common for many farm products around the world. This is a type of price floor that causes an excess of supply that is purchased by the government (shifts the demand curve to the right).

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