Demand, Supply, and Prices Chapter 6. Section #1 Key Terms: ▫Market equilibrium ▫Equilibrium price ▫Surplus ▫Shortage ▫Disequilibrium.

Demand, Supply, and PricesChapter 6

Section #1

•Key Terms:▫Market equilibrium▫Equilibrium price▫Surplus▫Shortage▫Disequilibrium

Section #1

•How do we get market equilibrium and equilibrium price?

•Demand and supply interact to determine equilibrium price

Section #1

•What causes surplus, shortage, disequilibrium?

•When there is a surplus prices tend to fall

Disequilibrium

•Always working our way back to equilibrium

The same works for supply

Equilibrium Prices

•Consumers want less or producers supply more prices fall

•Consumers want more or producers supply less, prices rise

Section #2

•Key Terms▫Competitive Pricing▫Incentive

Section #2

•Competitive Pricing▫Examples?▫Swim suites- some are selling for $15 some

for $30

Characteristics of Price System

•It is neutral•It is market driven•It is flexible•It is efficient

Prices Motivate Producers/Consumers•Producers:

▫Provides information Shows if the producers should enter a market

or not Shortage signals increase prices

▫Provides motivation Motivated to enter the market at higher

prices

Prices Motivate Producers/Consumers•Consumers:

▫Surpluses (lower prices)= time to buy▫High prices=not the time to buy

•Remember inferior and normal goods?

•Price influences buying habits

Michael Dell

•Beat the Competition•Efficient•Internet

Section # 3

•Key Terms▫Price Ceiling▫Price Floor▫Minimum wage▫Rationing▫Black market

Price Ceilings

•Stops prices from going up (balloon goes up what stops it?)

•Rent

Price Floors

•A minimum price that buyers must pay for a product

•You can’t go below the floor

▫Milk, corn, etc▫Minimum wage

Rationing/Black Market

•WWII rationing•Look for substitutes during rationing

▫Ex?▫North Korea

Section # 4

•Libya unrest•Consumer Demand

▫Entering the travel season▫Summer

•Japan▫Used nuclear power (that’s now not an

option)▫Must look to oil