Transcript 5 Demand & Supply Together

Essential Question: How do Supply and
Demand work together to form a picture
of the economy as a whole?
Equilibrium

The point where Qs = Qd
Disequilibrium

Any point where Qs ≠ Qd
Individual Demand Curve

The demand curve for one person; aka the
quantity demanded at various prices for one
person
Market Demand Curve

The demand curve representing everyone in
that particular market
Two different states of disequilibrium
Shortage:
1.


An excess of demand
Where Qd > Qs
Effects of a shortage:



Longer wait for consumers to get a good/service
Some consumers will have to go without
Two different states of disequilibrium
Surplus:
2.


An excess of supply
Where Qs > Qd
Effects of a surplus:



The goods/service of the producer will go to
waste
Producers will want to make less or lower prices
How do we get back to equilibrium?

From shortage to equilibrium:



Producers will notice the increased demand and
will typically raise prices.
As prices rise, customers will buy less.
This continues over time until the market works its
way back to a state of equilibrium
How do we get back to equilibrium?

From surplus to equilibrium:




Producers will get tired of their good/service going
to waste and will:
cut their prices and/or
produce less.
This continues over time until the market works its
way back to a state of equilibrium
The point:


Markets fluctuate, but tend toward a state of
equilibrium.
True only when prices are flexible

i.e., when they can easily change.
What happens when prices are not
flexible?

Price Ceiling



A maximum price that can be charged for a
good/service
Ex: Rent Control
Price Floor


A minimum price that can be charged for a
good/service
Ex: Minimum wage & agricultural products
Check for understanding:
1.
What can a price floor create in the market
place?
2.
What can a price ceiling create in the
market place?