1. Price, Quantity, and Market Equilibrium
Market Forces
SECTION ONE
Price, Quantity, and Market Equilibrium

2. Market Exchange: we know about this already…
What 3 economic questions?
Adam Smith: The Invisible Hand
What is it?
Market Exchange is voluntary and both sides expect to benefit

3. How Does What We Already know impact market exchanges?
Market prices guide resource to their most ___________ uses
Higher price encourages producers to allocate ________ resources to _____ good and ______ resources to production of _______ goods
AND
Channel goods to those consumers who _______ them ________.
Higher price encourages consumers to _______ or go ________

4. What do markets do? Allow you to ______ and ________ for a price
Buyers and sellers have different ___________
EX: PRICE RISES:
Consumers ______ their quantity demanded
Producers ______ their quantity supplied
Market Forces will ________ this difference
Markets reduce ________ costs
Decrease the amount of ______ and ______ needed to carry out an exchange
ex: Car dealerships

5. MARKET EQUILIBRIUM
Market Forces exert _______ until supply & demand _____ at the market __________
THEN: exert no ________ force
Must consider ______ AND _______ to figure out how reaches ____________.
FORMULA FOR EQUILIBRIUM:
Quantity that consumers are willing and able to ______ = quantity that producers are willing and able to _______

6. SURPLUS (downward pressure on price)
SHORTAGE (upward pressure on price)
Excess quantity _______
Suppliers want to get rid of their _______
Pushes the price _____
Producers ______ quantity supplied
Consumers _____ quantity demanded
As long as quantity supplied ____ quantity demanded the surplus forces the price _____
Excess quantity ________
Consumers want ______ than there is
Pushes the price ____
Producers _______ quantity supplied
Consumers ______ their quantity demanded
As long as quantity demanded __ quantity supplied the shortage forces the price ______

7. Market Forces Lead to Equilibrium Price and Quantity
Equilibrium quantity: ________
Equilibrium price: ___________

8. Equilibrium Price aka Market Clearing Price
Once reach equilibrium there is no force of change _____ there is a ________ the supply or demand curve
Independent ______ of individual sellers and buyers causes equilibrium in _________ markets

9. SECTION TWO Shifts of supply and demand curves
Market Forces
SECTION TWO
Shifts of supply and demand curves

10. Overview Changes in _________ of supply or demand _______ the curves
This changes the ________
Changes to new equilibrium if often ______
Sometimes equilibrium is not reached
Usually due to government _________

11. Remember Shifts DEMAND SHIFTS SUPPLY SHIFTS
Rightward shift = _______ price & quantity
Leftward shift = _______ price & quantity
SUPPLY SHIFTS
Rightward shift = _________
Leftward shift = __________

12. Shifts of Demand Curve Means quantity demanded changes at ______ price
What can shift demand:
Change in the money _______ of consumers
Change in the price of a ______________ good
Change in _________
Change in the number of _________
Change in consumer ________

13. Increase in demand
Means _______ are more willing and able to buy the product at every price.
Does _______ shift the ______ curve in any way!
INCREASE EXAMPLES
DECREASE EXAMPLES
Consumer Income
Substitute Pricing
Change in consumer expectations
Change in number of consumers
Change in consumer tastes

14. Shifts of Supply Curve
Means quantity supplied changes at every ________
What can shift supply:
Change in the ______ of ________ used
Change in the price of ________ could ______
Change in ________
Change in _______ expectations
Change in ________ of suppliers

15. Increase in supply
Means _______ are more willing and able to ________ the product at every price.
Does NOT shift the _______ curve in any way!
INCREASE EXAMPLES
DECREASE EXAMPLES
Resources used
Other goods
technology
expectations
Number of suppliers

16. What Happens When Both Curves Shift?
Shift in the _______ direction:
If supply and demand _____:
Equilibrium _______ will ________
Equilibrium price depends on which increases ____
Demand increase ___ supply increase = price ___
Demand increase ___ supply increase = price _____
If supply and demand ________
Equilibrium ________ will _________
Equilibrium price depends on which decreases ____
Demand decrease __ supply decrease = price ____
Demand decrease __supply decrease = price ____

17. What if they shift in opposite directions?
One increases and one decreases = opposite direction
_____ determine equilibrium _____ changes
_______ determine equilibrium _______ changes
Demand increase and supply decrease
Equilibrium price will ______
Demand decrease and supply increase
Equilibrium price will _______

18. Create a graphic organizer to keep these changes organized

19. SECTION THREE Market Efficiency and Gains from Exchange
Market Forces
SECTION THREE
Market Efficiency and Gains from Exchange

20. Competition and Efficiency (economists use 2 measures)
Producing output at the _______ possible ______
Making stuff RIGHT
________ forces firms to produce at the lowest possible cost
If not they either ___ their process or ______ the business
________ Efficiency
Producing output that consumers _______ the ______
Making the RIGHT stuff
When marginal _____ = marginal _____ of producing that market is allocatively efficient

21. What does efficiency mean
Supply curve =
opportunity ______ of producing the good
Demand curve =
marginal _______ that consumers attach to each unit of the good
Supply and Demand intersect at price and quantity where:
Marginal benefit_______ attach = marginal cost of ________ of that unit

22. Need both productive and allocative efficiency
Consider you are the best producer of this….
Will your business be successful? Explain…
Need both productive and allocative efficiency

23. Disequilibrium During the time necessary to ______
When ______ plans and ______ plans do not ______
Usually ________
Can last _____ usually due to government ___________

24. Causes of Disequilibrium
Government Regulations
Price Floor
______ legal price
Set _____ the equilibrium point
Results in a ______
Examples:
Set minimum price of __________ goods
Government buys and stores or disposes of surplus goods
Another example?

25. Causes of Disequilibrium
Price Ceiling
________ legal price
Set ______ the equilibrium price
Results in a _______
Examples:
_______ Ceilings
Maximum price for rental properties, often “other” fees get charged due to the ensuing shortage and competition for properties

26. Other Sources of Disequilibrium
______ items and _____ items often cause a _______ shortage
New items that do not _______ customers sit around in a ______

27. Consumer Surplus
The difference between the most consumers are willing and able to ______ for a given quantity and the amount they _____
When something is ______ the marginal benefit is _____ and the consumers will consume it until their marginal benefit is __
Means there will be _____ use
Even _____ fees will decrease this overuse
Ex: free medical vs. minimal cost ($1)

28. WHAT IS SUPPLY AND DEMAND http://vimeo

29. NY Times Article: Rents You must cite specifics from the article
What do renters do to compete for new apartments
What do owners/mgmt. companies do to make apartments attractive to renters
What are average rent prices in NYC
If NYC place a price ceiling of $1,800/mo for a 2 bedroom apartment what do you anticipate would happen to this competitive market (think addtl fees; shortages; quality of apartments; new construction etc)

30. Minimum Wage
Find two articles from a newspaper, magazine, etc (not a personal blog) that:
1 that argues in favor of a higher minimum wage (price floor)
1 that argues against a higher (maybe any) minimum wage (price floor)
Do you believe there should be a higher minimum wage why or why not
Be certain to specifically cite evidence from both articles in developing your postition