Supply & Demand Working Supply & Demand Working TogetherTogether

21-421-4Demand Curve

Supply Curve

Supply and Demand at Supply and Demand at WorkWork

What is a market?What is a market? Any place or mechanism where g/s are Any place or mechanism where g/s are

exchanged between buyers & sellersexchanged between buyers & sellers

The forces of supply and demand The forces of supply and demand work together in markets to work together in markets to set set pricesprices..

The Price Adjustment The Price Adjustment ProcessProcess

Why are supply & demand curves combined?Why are supply & demand curves combined? To see how they work together to set pricesTo see how they work together to set prices Remember, in a market economy like ours, prices rise & fall Remember, in a market economy like ours, prices rise & fall

according to what the consumer is willing to pay. This is VERY according to what the consumer is willing to pay. This is VERY different in a command economy where the GOVT. determines different in a command economy where the GOVT. determines ALL prices! ALL prices!

What color is the demand curve? What color is the demand curve? blueblue What color is the supply curve? What color is the supply curve? redred

When you see these curves on the test, they WILL When you see these curves on the test, they WILL NOT be in color!NOT be in color!

Surplus: Too much of a Surplus: Too much of a productproduct

At $40, suppliers will put At $40, suppliers will put 225225 video games on the shelf, but video games on the shelf, but consumers will only buy consumers will only buy 150150 at that price. at that price. How many are left over that won’t get sold? How many are left over that won’t get sold? 7575 (225-150=75)(225-150=75)

What is a surplus?What is a surplus? Anytime you have extra products that didn’t get soldAnytime you have extra products that didn’t get sold When the # of units supplied (by the producer) is higher than When the # of units supplied (by the producer) is higher than

the quantity demanded (by the consumer)the quantity demanded (by the consumer)

What does a surplus signal?What does a surplus signal? The price is too highThe price is too high

As a result, what will the seller do?As a result, what will the seller do? Lower the priceLower the price

Shortage: selling out of a Shortage: selling out of a productproduct

At $20, suppliers will put At $20, suppliers will put 105105 video games on the shelf, but video games on the shelf, but consumers want to buy consumers want to buy 230230 at that price (b/c that’s a good at that price (b/c that’s a good price!). price!). How many more video games are needed to meet the How many more video games are needed to meet the

consumers’ demands? consumers’ demands? 125 125 (230-105= 125)(230-105= 125)

What is a shortage?What is a shortage? When the # of units demanded (by the consumer) is higher When the # of units demanded (by the consumer) is higher

than the quantity supplied (by the producer)than the quantity supplied (by the producer)

What does a shortage signal?What does a shortage signal? The price is too low.The price is too low.

As a result, what will the seller do?As a result, what will the seller do? Raise the priceRaise the price This usually doesn’t happen immediately, though. This usually doesn’t happen immediately, though.

Customers would be very upset to have the pay a Customers would be very upset to have the pay a higher price for the SAME product that ran out.higher price for the SAME product that ran out.

Market ForcesMarket Forces What is the equilibrium price?What is the equilibrium price?

The perfect PRICE where there is no surplus & no shortage!The perfect PRICE where there is no surplus & no shortage! In other words, supply = demandIn other words, supply = demand

Using the graph on p.589, the equilibrium price is Using the graph on p.589, the equilibrium price is $30$30. .

At this price, there is neither a At this price, there is neither a shortageshortage or a or a surplussurplus (because (because consumers will consumers will demanddemand the same number of video games that the same number of video games that producers are willing to producers are willing to supplysupply).).

Therefore the two quantities are EQUAL Therefore the two quantities are EQUAL equilibrium equilibrium price!price!

It’s where the two curves intersect!It’s where the two curves intersect!

Price ControlsPrice ControlsEven though we don’t live in a command economy Even though we don’t live in a command economy

where the govt. sets prices, the govt. does interfere where the govt. sets prices, the govt. does interfere with prices ONLY to with prices ONLY to protectprotect the consumer. the consumer.

Why might the government set the price for a product?Why might the government set the price for a product? Some prices are unfair, so the govt. will step in to make sure consumers Some prices are unfair, so the govt. will step in to make sure consumers

aren’t being taken advantage of.aren’t being taken advantage of.

What is a price ceiling? What is a price ceiling? When the govt. sets a maximum price for a g/sWhen the govt. sets a maximum price for a g/s price “ceiling” = maximum (get it??)price “ceiling” = maximum (get it??) Example:Example:

Rent for an apartment (the govt. might say that a one bedroom apt. can not be Rent for an apartment (the govt. might say that a one bedroom apt. can not be rented for more than $800…again, this protects the consumer! rented for more than $800…again, this protects the consumer! ))

What is a price floor? What is a price floor? When the govt. sets a minimum price for a g/sWhen the govt. sets a minimum price for a g/s price “floor” = minimum (get it??)price “floor” = minimum (get it??) Example:Example:

Wages that a worker gets paid (the govt. creates a “minimum wage” law that says Wages that a worker gets paid (the govt. creates a “minimum wage” law that says that each worker must be paid at least that amount…this protects the worker! that each worker must be paid at least that amount…this protects the worker! ))

Price Ceiling

maximum

Price Floor

Now, go back to the combined Now, go back to the combined supply curve & demand curve supply curve & demand curve

that we drew together that we drew together yesterday.yesterday.

You learned 3 vocab. words You learned 3 vocab. words from this worksheet from this worksheet

that you need to add to YOUR that you need to add to YOUR graph.graph.

All of these will be shown on the All of these will be shown on the curves:curves: Equilibrium PriceEquilibrium Price SurplusSurplus ShortageShortage

Equilibrium PriceEquilibrium Price

The price at which The price at which quantity demanded = quantity suppliedquantity demanded = quantity supplied

Demand Curve

Supply Curve

Price

Surplus:Surplus:goods left overgoods left over

Demand Curve

Supply CurveNotice: It’s above the EQP.

Surplus

Shortage: Shortage: goods sold out! goods sold out!

Demand Curve

Supply Curve

Shortage

Notice: It’s below the EQP

Now, let’s see how all of these can be Now, let’s see how all of these can be seen on the seen on the schedulesschedules:: Equilibrium PriceEquilibrium Price SurplusSurplus ShortageShortage

Looking at a schedule.Looking at a schedule.PricePrice Q Q

demandedemandedd

Q Q suppliesupplie

dd$50$50 100100 275275

$40$40 150150 225225

$30$30 180180 180180

$20$20 230230 105105

$10$10 300300 5555

$5$5 400400 3030

Shortage

Notice: It’s located below the EQP.

Notice: It’s located above the EQP.

Surplus

Equilibrium Price

b/c

quantities

are equal

Will have leftovers

Will have leftovers

Won’t have enough

Won’t have enough

Won’t have enough

Now, can you do it by Now, can you do it by yourself?yourself?

Can you point to Can you point to the demand curve?the demand curve? the supply curve?the supply curve? The equilibrium price?The equilibrium price? the surplus?the surplus? the shortage?the shortage?

Do you need to hit the backspace button Do you need to hit the backspace button to review first?to review first?

A. Point to the demand curveA. Point to the demand curveB. Point to the supply curve.B. Point to the supply curve.C. Point to the equilibrium price.C. Point to the equilibrium price.D. Point to the surplus.D. Point to the surplus.E. Point to the shortage.E. Point to the shortage.

Demand Curve

Supply Curve

EqP

surplus

shortage

Try this:Try this: a. What is the equilibrium price?a. What is the equilibrium price?b. Where is the surplus?b. Where is the surplus?c. Where is the shortage?c. Where is the shortage?

PricePrice Q Q demandedemande

dd

Q Q suppliesupplie

dd$50$50 100100 275275

$40$40 150150 150150

$30$30 180180 130130

$20$20 230230 9090

$10$10 300300 5050

$5$5 400400 3535

Call Ms. Meadows over when you think you have all 3 answers!

A. Point to the demand curveA. Point to the demand curveB. Point to the supply curve.B. Point to the supply curve.C. Point to the equilibrium price.C. Point to the equilibrium price.D. Point to the surplus.D. Point to the surplus.E. Point to the shortage.E. Point to the shortage.

And this:And this:

Study! Study! Study!Study! Study! Study!