Transcript Price - Gore High School

EQUILIBRIUM
MARKET DEMAND
This is the total demand of all individual
consumers in a market at a given time for all prices.
 It is found by horizontally adding all individual
demand schedules or curves

P
2
+
1
2
P
2
2
=
1
D
1
P
Q
D
1
2 Q
D
1
2
4
Q
EXAMPLE
Emma’s demand for pies
weekly
Geoff’s demand for pies
weekly
Rob’s demand for pies
weekly
Market Demand for
pies weekly
Price
Quantity
demanded
Price
Quantity
demanded
Price
Quantity
demanded
Price
10
2
10
5
10
4
10
8
3
8
8
8
6
8
6
4
6
10
6
9
6
4
5
4
11
4
10
4
Quantity
demanded
Weekly Market Demand Curve for Pies
Price($)
MD
Quantity
Demanded (Each)
MARKET SUPPLY
This is the total Supply of all individual producers
in a market at a given time for all prices.
 It is found by horizontally adding all individual supply
schedules or curves

P
P
2
S
1
+
P
S
2
=
2
Q
S
1
1
1
2
1
2 Q
2
4
Q
MARKET SUPPLY SCHEDULE - EXAMPLE
Cam’s Takeaway's
weekly supply for pies
Scott’s Fasta Food
weekly supply for pies
Mike’s Munchies
weekly supply for pies
Market Demand for
pies weekly
Price ($)
Quantity
supplied
Price ($)
Quantity
supplied
Price ($)
Quantity
supplied
Price ($)
10
9
10
7
10
17
10
8
7
8
6
8
15
8
6
5
6
5
6
13
4
3
4
4
4
11
6
4
Quantity
supplied
Weekly Market Supply Curve for Pies
Price($)
MS
Quantity Supplied
(Each)
MARKET EQUILIBRIUM

Equilibrium is the point where market demand and
market supply cross

Market equilibrium determines the price. Called
equilibrium price

At this price quantity supplied exactly equals quantity
demanded.


So everyone prepared to buy at that price (consumers) gets
what they want and everyone prepared to sell at that price
(producers) do so.
At this price the market is stable and there is no pressure
for the price to change.
MARKET EQUILIBRIUM
Market equilibrium occurs at
the price where the quantity
demanded equals the
quantity supplied.
P
s
This occurs at Pe.
Pe
At this price both quantity
demanded and quantity
supplied is Qe.
d
Q
Qe
Equilibrium is a state of
balance. There are no
shortages or surpluses.
WORKSHEET – MARKET EQUILIBRIUM
DISEQUILIBRIUM
• Disequilibrium occurs if the existing price is either
above or below equilibrium price
• If the price is above equilibrium price, quantity
supplied will be higher than quantity demanded and
results in a surplus.
• Surplus (Excess supply) = QS >QD
• If the price is below equilibrium, quantity demanded
will be higher than quantity supplied and results in a
shortage.
• Shortage (Excess demand) = QD>QS
DISEQUILIBRIUM
Shortage
Surplus
DO – NOW
Complete the worksheet on market
equilibrium. Make sure you make your
axis even and label as the question
asks.
(Price is on the VERICAL axis)
Weekly market for TG20 mobile phones
Price ($)
Market demand
Market supply
100
650
400
120
500
500
140
350
600
160
200
650
180
100
700
MARKET REACTION TO DISEQUILIBRIUM'S
Complete the worksheet “ Two disequilibrium
situations”
SURPLUS (EXCESS SUPPLY)
P
QD
Surplus
QS
At the current price of $20 quantity demanded is 200 and Quantity supplied is 700
A surplus of 500 exists (700-200)
MARKET FORCES RESTORING EQUILIBRIUM
EXCESS SUPPLY ( SURPLUS)
1.
The producer will want to sell their excess stock so will react
by dropping the price of their product
2.
Consumers will react to lower prices by buying more as the
goods become more affordable (Law of demand)
3.
As prices fall producers decrease their supply as the good
becomes less profitable (Law of supply)
4.
QD increases and QS decreases until equilibrium is restored at
a price of $10 and quantity of 500.
SHORTAGE (EXCESS DEMAND )
P
QS
QD
Shortage
At the current price of $5 quantity demanded is 650 and Quantity supplied is 300
A shortage of 350 exists (650-300)
MARKET FORCES RESTORING EQUILIBRIUM
EXCESS DEMAND (SHORTAGE )
1.
The Consumers want to buy more of the goods so
they are prepared to pay higher prices. Consumers
bid the price up as they don’t want to miss out.
2.
Producers will react to higher prices by supplying
more as the good becomes more profitable (Law of
Supply)
3.
As prices increase, consumers demand falls as the
good becomes less affordable (Law of demand )
4.
QS increases and QD decreases until equilibrium is
regained where QD=QS (At a price of $10 and
quantity of 500)
WORKBOOK PAGES 131 - 134
MARKET REACTIONS TO DISEQUILIBRIUM




When the market is not in equilibrium we call this a
disequilibrium.
When the market is in a disequilibrium, there will be
pressure on the market.
These pressures are from the needs of consumers for goods
and services (demand) and the need of producers to sell
their goods and services (supply)
These pressures are known as
market forces or ‘the invisible hand’.
CHANGES TO EQUILIBRIUM
A change to any of the variables that cause a shift in either demand
or supply will cause a change in the equilibrium price and quantity.
Factors that shift the demand curve
• Tastes and preferences
• Income
• Complements
• Substitutes
Factors that shift the supply curve
• Price of related good
• Technology
• Productivity
• Cost of Production
EXAMPLE – CHANGES IN DEMAND
An increase in demand
caused by an increase
in consumer incomes
Price
($)
At the new
equilibrium
prices have
increased
and quantity
has
increased
s
P1
Pe
d
d'
Q
Qe
Q1
EXAMPLE – CHANGES IN SUPPLY
A decrease in supply
caused by cost of
production increasing
s’
s
Price
($)
Pe’
Pe
d
Qe’
Qe
At the new
equilibrium price
has increased
and quantity has
decreased