1. Chapter 6 Notes
The Price System

2. Market Equilibrium
The price system helps producers and consumers reach market equilibrium –
A situation that occurs when the quantity supplied and the quantity demanded for a product are equal at the same price. S
M.E. P D Q

3. How does the Price System steer producers and consumers toward the Equilibrium Point?
As producers change prices and the quantity of goods supplied, this adjustment period works to eliminate surpluses and shortages
In turn, the producers will find an equilibrium point where there are limited shortages and surpluses

4. Surplus
Exists when the quantity supplied exceeds the quantity demanded
How do you graph it? S
Surplus
S>D
100>20 P D 20 Q
100

5. Shortage
Exists when the quantity demanded exceeds the quantity supplied
How do you graph it? S P
Shortage
S<D
20<100 D Q 20
100

6. Price Floor
Government regulation establishing a minimum price that a price can not go below!
Price Floor exist when there is a surplus!
Often times in the agricultural industry
Graph it!

7. S Price Floor & surplus P D Q Prices can not go below the Price floor
5.00$
Price Floor
& surplus P D Q 50
150

8. Price Ceiling
Government regulation establishing a maximum price that a price can not go above!
Price Ceilings exist when there is a Shortage!
To protect consumers from price gauging.
Graph it!

9. Price Ceiling and Shortage 3.00$
Prices can not above this point! D Q
100
250