Transcript prices - Pearland ISD

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Combining Supply & Demand
Chapter 6 Section 1
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• 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.
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• 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.
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• 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!
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• 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.
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• The point where demand and supply come
together is called Equilibrium.
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• 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.
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• 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.
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• 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.
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• 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.
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• Surplus
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• 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.
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• 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
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• People (consumers) won’t buy more than
they demand.
• Suppliers will start to incur losses because
they are producing more than they are
selling.
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• 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}.
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• Eventually the market gets back into
equilibrium.
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• The opposite can occur. Shortage
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• 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.
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• 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.
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• Government Intervention
• Sometimes the government steps in to
control prices.
• They can impose a Price Ceiling or a Price
Floor.
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• 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
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• Price Ceiling leads to a Shortage!
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• 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.
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• 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.
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• Was designed to help the poor get
housing in NYC.
• Landlords will usually stop renting singlebedroom apartments at $600/mo.
• Instead they turn the apartments into
town-homes, condos, office space, etc
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• Price Floors leads to a Surplus!
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• 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.
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• 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.
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• 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.