1. PRICE
Equilibrium: the point where demand and supply come together at the same price and quantity
At this point the
needs of both
consumers and
producers are in
balance

2. DISEQUILIBRIUM
Disequilibrium: when the quantity supplied and quantity demanded are not equal at the price offered.
One of two results will occur:
1. Excess demand
(Shortage)
2. Excess supply
(Surplus)

3. EXCESS DEMAND
Excess demand occurs when quantity demanded is greater than quantity supplied
This happens when the price of a good is
below the equilibrium price
Producers will
respond to this
shortage by
increasing the price
of the good

4. EXCESS SUPPLY
Excess supply occurs when quantity supplied is greater than quantity demanded
This happens when the price of a good is above the equilibrium price
Producers will respond
to this surplus by
decreasing the
price of the good

5. PRODUCT: CHOCOLATE-COVERED ESPRESSO BEANS
1. New Tax On Production Of All Caffeinated Products 2. Pest Infestation Infests South American Coffee Plantations 3. Cost of Chocolate Decreases 4. Congress Votes To Subsidize Chocolate Covered Snack Items 5. Rejoice: CCEB Prices Fall 6. Machines Replace Workers On Cocoa Farms 7. Caffeine % Must Now Be Stamped On All Beans

6. PRICE CEILINGS A maximum price set by law is a price ceiling
Price ceilings are placed on some ‘essential’ goods that some consumers wouldn’t otherwise be able to afford
Rent control is an example of a price ceiling

7. PRICE CEILINGS
Price ceilings are set below the market equilibrium price; therefore they result in excess demand
Price ceilings = shortage
(it is difficult to find an
apartment in a city
with rent control)

8. PRICE FLOORS A minimum price set by law is a price floor
Price floors are used to ensure that prices don’t fall so low a producer won’t get adequate reward for his/her efforts
Minimum wage is an example of a price floor

9. PRICE FLOOR
Price floors are set above the market equilibrium price; therefore they result in excess supply
Price floors = surplus
(there will be fewer
jobs for the # of workers
available)

10. CHANGES IN MARKET EQUILIBRIUM - SUPPLY
If supply increases, the
new equilibrium price
will be _________ and the
new equilibrium quantity
will be _________
Lower, higher

11. CHANGES IN MARKET EQUILIBRIUM - SUPPLY
If supply decreases, the new equilibrium price will be _________
and the new equilibrium
quantity will be
__________
higher, lower

12. CHANGES IN MARKET EQUILIBRIUM - DEMAND
If demand increases,
the new equilibrium
price will be ________ and
quantity will be ________
higher, higher

13. CHANGES IN MARKET EQUILIBRIUM - DEMAND
If demand decreases, the new equilibrium price will be _________
and the new equilibrium
quantity will be ________
lower, lower