1. Putting Supply & Demand Together
Econ Alive Chapter 6
Putting Supply & Demand Together

2. Equilibrium Price
Price at which Quantity Demanded and Quantity Supplied are equal
In the real world, Demand and Supply work together

3. Changes in Demand or Supply Demand and Supply can still change!
Changes in Supply
Key Words: Buyers/Consumers
Determinants:
Population
Income of Consumers
Change in Consumer Tastes
Price of Substitutes
Price of Complementary Goods
Consumer Expectations
Key Words: Sellers/Suppliers/ Producers/Manufacturers
Determinants:
Price of Inputs
# of Firms in the Industry
Business Taxes/Government Policy
Technology
Producer Expectations
Natural Disaster/Major Event

4. Shifts in Equilibrium Price
When Demand or Supply changes, Equilibrium price changes

5. Increases Equilibrium Price & Quantity
Increase in Demand

6. Decrease in Equilibrium Price and Quantity
Decrease in Demand

7. Increases Equilibrium Price Decreases Equilibrium Quantity
When Supply Decreases

8. Equilibrium Price Decreases Equilibrium Quantity Increases
When Supply Increases

9. Shortage
Situation in which quantity demanded is greater than quantity supplied

10. Surplus
Situation in which quantity supplied is greater than quantity demanded

11. Use the Force! (of the Market)
We don’t like shortages or surpluses!
The market wants to correct itself and adjust the price to get back to equilibrium!

12. Price Controls Government gets involved Creates: To help consumers?
Protect interest groups?
Creates:
Price Ceilings
Price Floors

13. Price Ceiling
Legal maximum price that may be charged for a good or services
Often creates shortages

14. Price Floor
Legal Minimum price that may be charged for a good or service
Often creates surpluses