1 / 12

Chapter 6 notes – all sections

Chapter 6 notes – all sections. Price Adjustment Process. Market Equilibrium - a situation in which prices are relatively stable, and Qs = Qd (S and D cross) Surplus – Qs > Qd; price tends to go down as a result

barb
Download Presentation

Chapter 6 notes – all sections

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 6 notes – all sections

  2. Price Adjustment Process • Market Equilibrium - a situation in which prices are relatively stable, and Qs = Qd (S and D cross) • Surplus – Qs > Qd; price tends to go down as a result • Shortage – Qd > Qs; results in the price and quantity supplied going up usually

  3. Supply Equilibrium Equilibrium price $2.00 Demand Equilibrium quantity The Equilibrium of Supply and Demand – do not draw Price of Ice-Cream Cone 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of Ice-Cream Cones

  4. Supply Surplus $2.50 2.00 Demand 4 7 10 Quantity Quantity demanded supplied Markets Not in Equilibrium – do not draw (a) Excess Supply Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones

  5. Supply $2.00 1.50 Shortage Demand 4 7 10 Quantity Quantity supplied demanded Markets Not in Equilibrium – do not draw (b) Excess Demand Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones

  6. Price Ceilings • Maximum legal price that can be charged for a product • Example: rent control • BELOW EQUILIBRIUM • Causes a shortage

  7. Price Ceiling – do not draw

  8. Price Floors • Lowest legal price that can be paid for something • Example – minimum wage • ABOVE EQUILIBRIUM • Causes a surplus

  9. Price Floor – do not draw

  10. Shifting Curves with S and D • When a S or D curve shifts it will change the Equilibrium Price and Quantity

  11. 1. Hot weather increases the demand for ice cream . . . Supply New equilibrium $2.50 2.00 2. . . . resulting Initial in a higher equilibrium price . . . D D 7 10 3. . . . and a higher quantity sold. Figure 10 How an Increase in Demand Affects the Equilibrium Price of Ice-Cream Cone Quantity of 0 Ice-Cream Cones

  12. 1. An increase in the price of sugar reduces the supply of ice cream. . . S2 S1 New equilibrium $2.50 2.00 2. . . . resulting in a higher price of ice cream . . . Demand 4 7 3. . . . and a lower quantity sold. Figure 11 How a Decrease in Supply Affects the Equilibrium Price of Ice-Cream Cone Initial equilibrium Quantity of 0 Ice-Cream Cones

More Related