DateDate: March 27, 2014: March 27, 2014

TopicTopic: Combining supply and : Combining supply and demand. demand.

AimAim: How did supply and : How did supply and demand meet?demand meet?

Do NowDo Now: Multiple Choice : Multiple Choice QuestionsQuestions

Laws of Supply and Demand.

The law of demand is centered around…?

The law of supply is centered around …?

BALANCE TO THE FORCE!

BALANCE

The point of balance The point of balance between price and quantity. between price and quantity.

At Equilibrium, the market At Equilibrium, the market for a good is stable.for a good is stable.

When supply and demand meet in the marketplace, a market price is created. 

This is equilibrium price. 

The best way to visualize equilibrium price to place the supply and demand curves in the same diagram.

Equilibrium in a market occurs when the price balances the plans of buyers and sellers. 

It sets the value of the product.

Equilibrium price is represented by the point where the demand and supply curves intersect.

When the quantity When the quantity supplied is not supplied is not equal to quantity equal to quantity demanded in a demanded in a market.market.

The market price of The market price of quantity supplied is quantity supplied is anywhere but at anywhere but at the equilibrium.the equilibrium.

THERE IS NO BALANCE!

Quantity demanded is more than the Quantity demanded is more than the quantity supplied. quantity supplied.

The actual price in a market is below The actual price in a market is below the equilibrium pricethe equilibrium price

A low price encourages buyer and A low price encourages buyer and discourages sellers.discourages sellers.

Quantity supplied Quantity supplied exceeds quantity exceeds quantity demanded. demanded.

If the price is too If the price is too high, then the market high, then the market will face a problem of will face a problem of excess supply. excess supply.

Price Ceiling: Maximum price that can be legally charged for a good. (Considered “essential” & become too expensive)

Price Floor: Minimum price for a good or service.

Motivated by a desire to help poor Motivated by a desire to help poor households by cutting housing households by cutting housing costs. costs.

Reduces quantity/quality of Reduces quantity/quality of housing. housing.

At a low price, seems inexpensive. At a low price, seems inexpensive. However price ceiling increases However price ceiling increases

quantity demanded but decreases quantity demanded but decreases quantity supplied. quantity supplied.

Employer can pay a worker for an hour of Employer can pay a worker for an hour of labor.labor.

Federal government sets a base level for Federal government sets a base level for the minimum wage.the minimum wage.

If the minimum wage is set above the If the minimum wage is set above the market equilibrium wage rate, decrease in market equilibrium wage rate, decrease in employment.employment.

Excess supply of labor.Excess supply of labor.

SUMMARY:How does supply

and demand create balance in the marketplace?