Post on 03-May-2018
EQUILIBRIUM PRICE
Price at which
Quantity Demanded
and Quantity Supplied
are equal
In the real world,
Demand and Supply
work together
Created by S. Johnson
CHANGES IN DEMAND OR SUPPLY
DEMAND AND SUPPLY CAN STILL CHANGE!
CHANGES IN DEMAND CHANGES IN SUPPLY
Key Words:
Buyers/Consumers
Determinants:
Population
Income of Consumers
Change in Consumer Tastes
Price of Substitutes
Price of Complementary Goods
Key Words:
Sellers/Suppliers/
Producers/Manufacturers
Determinants:
Price of Inputs
# of Firms in the Industry
Business Taxes
Technology
Created by S. Johnson
SHIFTS IN EQUILIBRIUM PRICE
When Demand or Supply changes, Equilibrium
price changes
Created by S. Johnson
WHEN SUPPLY DECREASES
Increases Equilibrium
Price
Decreases Equilibrium
Quantity
Created by S. Johnson
WHEN SUPPLY INCREASES
Equilibrium Price
Decreases
Equilibrium Quantity
Increases
Created by S. Johnson
SHORTAGE
Situation in which quantity
demanded is greater than
quantity supplied
Created by S. Johnson
SURPLUS
Situation in which
quantity supplied is
greater than
quantity demanded
Created by S. Johnson
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!
Created by S. Johnson
PRICE CONTROLS
Government gets involved
To help consumers?
Protect interest groups?
Creates:
Price Ceilings
Price Floors
Created by S. Johnson
PRICE CEILING
Legal maximum price
that may be charged
for a good or services
Often creates
shortages
Created by S. Johnson