1. Combining Supply and Demand

2. Equilibrium
Equilibrium is the point where supply and demand come together
Balance between price and quantity
The market is good and stable

3. Market Disequilibrium
Market price or quantity supplied is anywhere but at the equilibrium price the
market is in a state called disequilibrium.
There are two causes for disequilibrium:
Excess of Supply
Excess of Demand

4. Excess of Supply
Excess supply occurs when quantity supplied exceeds quantity demanded.

5. Excess of Demand
Excess demand occurs when quantity demanded is more than quantity supplied.

6. Price Floor
A price floor is a minimum price, set by the government, that must be paid for a good or service.
Can be setup above or below equilibrium
Putting the floor above equilibrium is the preferred method.

7. Price Floor Above equilibrium Consumers don’t want to buy goods
Suppliers will then supply more
LAW OF SUPPLY

8. Price Ceiling
A price ceiling is a maximum price that can be legally charged for a good.
Can be setup above or below equilibrium
Putting the ceiling below equilibrium is the preferred method

9. Price Ceiling Below equilibrium
Creates more demand than at equilibrium.
Supply will go down
LAW OF DEMAND

10. Price of a slice of pizza Combined Supply and Demand Schedule
Balancing the Market
Interactions between buyers and sellers will always push the market back towards equilibrium.
Price per slice
Equilibrium Point
Finding Equilibrium
Price of a slice of pizza
Quantity demanded
Quantity supplied
Result
Combined Supply and Demand Schedule
$ .50
300
100
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$.50
Slices of pizza per day 50
150
200
250
350
Supply
Demand
$2.00
$2.50
$3.00
150
100 50
250
300
350
Surplus from excess supply
$1.00
250
150
Shortage from excess demand
$1.50
200
Equilibrium
Equilibrium Price a
Equilibrium Quantity