p r i c e s combining supply & demand chapter 6 section 1
TRANSCRIPT
![Page 1: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/1.jpg)
P R I C E S
Combining Supply & Demand
Chapter 6 Section 1
![Page 2: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/2.jpg)
P R I C E S• Objectives:
– Explain how supply and demand create balance in the marketplace.
– Compare a market in equilibrium with a market in disequilibrium.
– Identify how the government sometimes intervenes in markets to control prices.
– Analyze the effects of price ceilings and price floors.
![Page 3: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/3.jpg)
P R I C E S• Market system makes certain that
consumers can buy the products they want, that sellers make enough profit to stay in business, and that sellers respond to changing needs and tastes of consumers.
![Page 4: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/4.jpg)
P R I C E S• Other economic systems have been tried
– most notably, central planning/Command Economy – and have been judged by most observers to be less successful than the market system.
• The United States has a market system!
![Page 5: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/5.jpg)
P R I C E S• Just as buyers and sellers come together
in a market, the study of demand and supply will come together in this
section.• Demand – shows how much consumers
are willing to buy at various prices.• Supply – shows how much producers are
willing to sell at various prices.
![Page 6: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/6.jpg)
P R I C E S• The point where demand and supply come
together is called Equilibrium.
![Page 7: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/7.jpg)
P R I C E S
![Page 8: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/8.jpg)
P R I C E S• Equilibrium is the point of balance
between price and quantity.
• To find equilibrium price and quantity, look for the price at which quantity
supplied equals quantity demanded.
![Page 9: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/9.jpg)
P R I C E S• In the market for most products quantities
supplied and demanded will be equal at only one price and one quantity.
• Buyers are willing to purchase as much of this product as firms are willing to
sell.
![Page 10: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/10.jpg)
P R I C E S• Buyers will find ample supplies of this
product on the store shelves.
• Firms that are willing to sell at the equilibrium price will find enough buyers for their goods.
![Page 11: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/11.jpg)
P R I C E S• Disequilibrium
• If the market price and quantity supplied is anywhere but at equilibrium, the
market is in a state of disequilibrium.• Disequilibrium occurs when quantity
supplied is not equal to quantity demanded in a market.
![Page 12: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/12.jpg)
P R I C E S• Surplus
![Page 13: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/13.jpg)
P R I C E S• Surplus:• If something shifts the demand or supply curves,
the equilibrium price and quantity will change.
• The market wants to operate at equilibrium. It’s like when atoms give up and take on
electrons to become balanced. That’s what the market does – supply and demand will change to try to get back to equilibrium.
![Page 14: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/14.jpg)
P R I C E S• The market will always move itself to
equilibrium. • IF Price becomes $ 4.00 and QS becomes
60 – we have a surplus.• If QS > QD = we have a surplus.• A situation of excess supply in the market
![Page 15: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/15.jpg)
P R I C E S• People (consumers) won’t buy more than
they demand.• Suppliers will start to incur losses because
they are producing more than they are selling.
![Page 16: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/16.jpg)
P R I C E S• 1. Sellers will start to lower prices ($ 3) to
get rid of the excess supplies – the big, big sales in the stores (after X-Mas,
etc)• 2. Buyers respond to lower prices by
demanding more {increase in QD}.• 3. Producers will respond to lower prices
by supplying less product {decrease in QS}.
![Page 17: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/17.jpg)
P R I C E S• Eventually the market gets back into
equilibrium.
![Page 18: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/18.jpg)
P R I C E S• The opposite can occur. Shortage
![Page 19: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/19.jpg)
P R I C E S• Shortage: a situation of too little supply in
a market. QD > QS• If Price were to drop to $ 1.00 and QD
were to increase to 55.• Consumers are demanding more than
producers are supplying.
![Page 20: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/20.jpg)
P R I C E S• If the market were to stay here…
– Producer would respond by increasing production.– Buyers become more willing to increase price.– As producers increase production, they must increase
the selling price.– An increase in price signals consumers to buy less.
{decrease in Qd}.– An increase in price signals producers to produce
more {increase in Qs}.– Eventually equilibrium is reached.
![Page 21: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/21.jpg)
P R I C E S• Government Intervention• Sometimes the government steps in to
control prices.• They can impose a Price Ceiling or a Price
Floor.
![Page 22: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/22.jpg)
P R I C E S• Price Ceiling:
– a MAXIMUM price that can be legally charged for a good.
• Price Floor:– a MINIMUM price for a good or service. – i.e. Minimum Wage Laws
![Page 23: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/23.jpg)
P R I C E S• Price Ceiling leads to a Shortage!
![Page 24: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/24.jpg)
P R I C E S• The government places price ceilings on
some goods that are considered “essential” and might become too expensive for some consumers.
• New York City has rent control protection.• Price on open market is $900/month.• Rent Control price is $600/month.
![Page 25: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/25.jpg)
P R I C E S• The problem with this is that landlords are
limited in how much they can earn.– Usually don’t put on a fresh coat of paint,
plant fresh flowers in the garden, etc.– They won’t get their money back through
higher rent.– Leads to apartments becoming run down,
especially if there is a waiting list to get an apartment.
![Page 26: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/26.jpg)
P R I C E S• Was designed to help the poor get
housing in NYC.• Landlords will usually stop renting single-
bedroom apartments at $600/mo. • Instead they turn the apartments into
town-homes, condos, office space, etc
![Page 27: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/27.jpg)
P R I C E S• Price Floors leads to a Surplus!
![Page 28: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/28.jpg)
P R I C E S• Minimum Wage – sets a minimum price
that an employer can pay a worker for an hour of labor.
• Federal Gov’t. sets the base level• States can set their own level above the
Federal level.
![Page 29: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/29.jpg)
P R I C E S• This is a wage that a worker will make
working full-time.• Min. Wage has caused some to lose their
job.• If min. wage is set above the equilibrium
wage, the result is a decrease in employment.
![Page 30: P R I C E S Combining Supply & Demand Chapter 6 Section 1](https://reader036.vdocuments.site/reader036/viewer/2022081821/551b00285503462e578b5172/html5/thumbnails/30.jpg)
P R I C E S• Minimum Wage leads to a surplus of labor.• Business is not going to hire anymore than
they want to. Many people cannot find a job.
• Price Floors have also been used in agricultural products. Gov’t. would by the excess crops that could not be sold on the market.