Transcript The Price System (Markets)

Economics Unit 4, Lesson 1
The Price System
(Markets)
©2012, TESCCC
Potential Buyers
Potential Sellers
Markets
The interaction of buyers and sellers
determines the price and quantity of
most goods in a market system.
©2012, TESCCC
Buyers and sellers have
opposite goals.
Buyers want the lowest price.
Sellers want the highest price.
©2012, TESCCC
Markets
Draw Supply & Demand
Demand Schedule
$
QD
10.00
60
20.00
40
30.00
20
©2012, TESCCC
Supply Schedule
$
QS
10.00
20
20.00
40
30.00
60
Market
$ 30
S
EP 20
10
D
20
©2012, TESCCC
40
EQ
60
Q
With supply and demand both
on graph, we now have a
market.
Market equilibrium – where
quantity demanded and quantity
supplied are equal
©2012, TESCCC
Based on 2 Assumptions
1. Everything in market has a price.
2. Price is best measure to answer
the three basic economic
questions.
©2012, TESCCC
Prices act as signals.
Signals to adjust
– Demand
– Supply
©2012, TESCCC
Disequilibrium
QS = QD
This creates a shortage or a
surplus.
©2012, TESCCC
Surplus
• A price above equilibrium creates a
surplus.
• A surplus is when QS is greater
than QD.
©2012, TESCCC
Surplus
Excess Supply
QS > QD
P
S
30
EP 20
D
QD
©2012, TESCCC
40
EQ
Q
QS
Shortage
• A price below equilibrium created a
shortage.
• Shortage is when QD is greater than QS.
©2012, TESCCC
Shortage
Excess Demand
$
QD > QS
S
EP20
10
D
QS
©2012, TESCCC
40
EQ
QD
Q