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Combining Supply and Demand Chapter 6
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Price at which quantity supplied is equal to quantity demanded Intersection of the demand and supply curves ◦ All free markets want to be at equilibrium ◦ Natural forces will cause a return to equilibrium when things get out of balance
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$ S D Q E
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Disequilibrium – condition in which quantity supplied is not equal to quantity demanded Shortage – quantity supplied is less than quantity demanded at a given price Surplus – quantity supplied is greater than quantity demanded at a given price
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Increase S D $ Q E D2D2 E2E2
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Decrease $ Q S D D2D2 E E2E2
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Increase S D S2S2 $ Q E E2E2
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Decrease E E2E2 S S2S2 D $ Q
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Price Floor – minimum price that can legally be charged for a g/s ◦ Guarantee for the producer ◦ Creates a surplus Price Ceiling – maximum price that can legally be charged for a g/s ◦ Protection for the consumer ◦ Creates a shortage
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$ Q S D E Floor QsQs QDQD
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Ceiling $ Q S D QSQS QDQD E
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Draw a market equilibrium graph for a hypothetical good or service Explain a change in supply or demand Tell what factor caused the change Show the effects on the graph ◦ Use the blank half sheet ◦ Put your name on the paper ◦ Turn in before you leave today
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