Supply and Demand Equilibrium

Adapted from material provided by Hudson Falls High School

Examples: Change in Demand

• What is the initial Price Equilibrium?• What is the New Price Equilibrium?• What factors (determinants) may have caused this

shift?

Concert Tickets

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Supply

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D2

Example: Change in Supply

• What is the initial Equilibrium Price/Quantity?• What is the New Equilibrium Price/Quantity?• Why would the Government get offer subsidies to

Universities?

Subsidies to Public Universities

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S1

Demand

S2

• When the quantity supplied exceeds the quantity demanded

Surplus

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Demand

Surplus

What is the amount of surplus at $40?

• When there is an excess of quantity demanded compared to quantity supplied

Shortage

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Demand

Shortage

What is the amount of shortage?

Thus, a surplus creates downward pressure on the price, and a shortage creates upward pressure on the price

Price tends toward Equilibrium

Price Floors &

Price Ceilings

When the Government Gets Involved

Price Ceilings• A legal maximum that can be charged for a good• Results in a Shortage• Ex. – rent controls, credit card interest rates, oil

Shortage

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Shortage

Price Floors• A legal minimum that can be charged for a

good.• Results in a Surplus• Ex. minimum wage, milk, sugar

Surplus

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Supply

Demand

Surplus