Putting Supply and Demand Together

1. Putting Supply and Demand Together

2. Defining and Moving to Equilibrium • Both supply and demand work • Equilibrium the point at which the quantity • At equilibrium, the market for a good is stable • Quantities supplied and demanded will • Disequilibrium any price or quantity not at equilibrium;

3. Excess Demand • Shortage the condition in which the quantity demanded • Shortages occur only • When actual price in a market is below the equilibrium, you have excess demand • As long as there is excess demand, and the quantity demanded exceeds the

4. Excess Supply • Surplus quantity supplied of a good is • Surpluses occur only at prices • High price encourages owners to produce more, • As price falls, demand rises and • Whenever the market is in disequilibrium and prices are flexible,

5. Role of Price Ceilings on Supply and Demand • Price ceiling a maximum • Ceilings are put on goods that are considered essential and • Rent control a price ceiling • Goal help poor • Problem reduces quality • Leads to increased demand and

6. Role of Price Ceilings and Rent Control • Ceilings will reduce the • Landlords may try to increase income • No incentive to attract renters and buildings will be run-down • Renters may have to wait months

7. Role of Price Floors on Supply and Demand • Price floor a minimum • Leads to an increase in supply and • Imposed when the government wants sellers

8. Role of Price Floors on Supply and Demand • Minimum wage a minimum price that an employer • When minimum wage is set above the market equilibrium wage rate,