1. The Price System (Markets)
Economics Unit 4, Lesson 1
The Price System (Markets)
Microsoft. (Designer). (2010). Clip art [Web Graphic]. Retrieved from
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2. 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
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3. 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
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4. Markets Draw Supply & Demand
Demand Schedule $ QD
Supply Schedule $ QS
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5. Market $ 30 S
EP 20 10 D Q 20 40 EQ 60
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6. 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
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7. Based on 2 Assumptions Everything in market has a price.
Price is best measure to answer the three basic economic questions.
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8. Prices act as signals.
Signals to adjust
Demand
Supply
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9. QS = QD This creates a shortage or a surplus.
Disequilibrium
QS = QD This creates a shortage or a surplus.
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10. Surplus A price above equilibrium creates a surplus.
A surplus is when QS is greater than QD.
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11. Surplus Excess Supply QS > QD30
EP 20 D QS QD Q 40 EQ
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12. Shortage A price below equilibrium created a shortage.
Shortage is when QD is greater than QS.
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13. Shortage Excess Demand QD > QS$ S
EP20 10 D QS 40 EQ QD Q
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