The Price System ( Markets) ©2012, TESCCC Economics Unit 4, Lesson 1.

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Presentation transcript:

The Price System ( Markets) ©2012, TESCCC Economics Unit 4, Lesson 1

Potential BuyersPotential Sellers Markets The interaction of buyers and sellers determines the price and quantity of most goods in a market system. ©2012, TESCCC

Buyers and sellers have opposite goals. Buyers want the lowest price. Sellers want the highest price. ©2012, TESCCC

Markets Draw Supply & Demand Demand Schedule $ QD Supply Schedule $ QS ©2012, TESCCC

Market D S $ EP EQ Q ©2012, TESCCC

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

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

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 D S P EP EQ Q QD QS 30 ©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 D S $ EP20 40 EQ Q QS QD 10 ©2012, TESCCC

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