Price: Supply and Demand Together. Finding Market Equilibrium Supply and Demand work together to determine price. Surplus: The condition in which the.

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Presentation transcript:

Price: Supply and Demand Together

Finding Market Equilibrium Supply and Demand work together to determine price. Surplus: The condition in which the quantity supplied of a good is greater than the quantity demanded. Surpluses occur only at prices above equilibrium Ex: There are 40,000 Ipods. At $400 per Ipod, buyers only purchase 30,000. This leaves a surplus of 10,000 Ipods.

Finding Market Equilibrium

Shortage: The condition in which the quantity demanded of a good is greater than the quantity supplied. Shortages only occur at prices below equilibrium price. Ex: There are 40,000 Ipods. The price of the Ipods is $200. Buyers want to purchase 60,000. There is a shortage of 20,000

Finding Market Equilibrium

Equilibrium: In a market the point at which the quantity of a good that buyers are willing and able to buy is equal to the quantity that sellers are willing and able to produce and offer for sale. Quantity demanded=quantity supplied Ex: There are 40,000 Ipods. At $320, buyers purchase 40,000 Ipods.

Finding Market Equilibrium

Equilibrium Quantity: The quantity of a good bought and sold in a market that is in equilibrium. Equilibrium Price: The price at which a good is bought and sold in a market that is in equilibrium.

Finding Market Equilibrium Q s >Q d Surplus Q d >Q s Shortage Q d =Q s Equilibrium

Why Does Price Fall When a Surplus Occurs? Inventories: The stock of goods that a business or store has on hand When a surplus occurs, the suppliers inventories grow beyond normal amounts. Storing extra goods can be costly, so price decreases

Why Does Price Rise When There is a Shortage? If a situation occurs where there are more buyers then sellers, some buyers will offer more money to sellers to make sure they get the good over another buyer. This creates competition for a good

What Causes Equilibrium Price to Change? Change in Supply Change in Demand Change in Supply and Demand DemandSupplyEquilibrium Price Equilibrium Quantity ?+ --?- +-+? -+-?

What Causes Equilibrium Price to Change? Keeping market equilibrium is important because it keeps buyer and sellers happy. What would like be like without market equilibrium if you were a buyer? seller?

What Causes Equilibrium Price to Change? Why is the price of a new video game systems (PS3) or Elmo dolls cost so much around Christmas time and then price falls after a few months?

Price Controls Price Ceiling: A legislated price Set lower than the equilibrium price Cannot legally buy or sell above the price Usually imposed by the government to keep prices more affordable to buyers

Price Controls Price Floor: A legislated price Set above the equilibrium price Cannot legally buy or sell below the price Usually imposed by the government to help producers make more money

Manipulating Supply and Demand Graphs Partner up with someone next to you and draw a supply and demand graph on a piece of paper. Teacher ask students to demonstrate and conclude different results from supply and demand graphs. Draw results on whiteboard.