Economics Mr. Bordelon. The point at which quantity demanded and quantity supplied are equal.
Supply and Equilibrium Lesson 2.6. Law of Supply When Prices go up, quantity Supplied goes up When...
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Transcript of Supply and Equilibrium Lesson 2.6. Law of Supply When Prices go up, quantity Supplied goes up When...
Supply and Equilibrium
Lesson 2.6
Law of Supply
• When Prices go up, quantity Supplied goes up• When Prices go down, quantity Supplied goes
down– Quantity supplied is a measure of the number of
suppliers in the market, and how many products can be sold at a high price.
– As the price goes higher, producers look at bigger profits, so they create more goods.
Understanding the Supply Curve
• The supply curve is a upward sloping curve, showing the proportional relationship between prices and quantity supplied.
Price
Quantity
Supply
Supply Schedules and Market Schedules
• Just as with demand, it is possible to set up a price versus supply schedule chart, to show how much is supplied at various prices.
Shifts in the Supply Curve
• Changes in price changes quantity supplied, but does not move the curve.
• Just like with Demand, the Supply curve can move as factors other than price affect the curve.
– Changes in input prices– Changes in the prices of related
goods– Changes in technology– Changes in expectations– Changes in the number of producers
The Role of Prices
• Prices, or what someone is willing to pay for a good or service, and what a supplier is willing to provide, is a cornerstone of capitalism.
• This goes a long way to answering the three basic questions that an economic system: What do we make; How do we make it; Who gets it.
• While suppliers always want to get the maximum price for their goods (profit motive), buyers often are looking for the best deals.
Supply and Demand
• Market Balance– When Supply and Demand meet, the market is
said to be in balance. This point at which they meet on the graph is called the Equilibrium Point.
– The equilibrium point is considered very important in economics, because it is the point at which a “free market” will decide on the price of goods or the Market Clearing Price
The Equilibrium of Supply and DemandPrice of
Ice-CreamCone
0 1 2 3 4 5 6 7 8 9 10 11 12Quantity of Ice-Cream Cones
13
Equilibriumquantity
Equilibrium price Equilibrium
Supply
Demand
$2.00
Markets Not in Equilibrium
Price ofIce-Cream
Cone
0
Supply
Demand
(a) Excess Supply
Quantitydemanded
Quantitysupplied
Surplus
Quantity ofIce-Cream
Cones
4
$2.50
10
2.00
7
Markets Not in Equilibrium
Price ofIce-Cream
Cone
0 Quantity ofIce-Cream
Cones
Supply
Demand
(b) Excess Demand
Quantitysupplied
Quantitydemanded
1.50
10
$2.00
74
Shortage