PUTTING SUPPLY & DEMAND TOGETHER Chapter 7 Section 4 Created by S. Johnson
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PUTTING SUPPLY & DEMAND TOGETHER
Chapter 7 Section 4
Created by S. Johnson
EQUILIBRIUM PRICE
Price at which
Quantity Demanded
and Quantity Supplied
are equal
In the real world,
Demand and Supply
work together
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CHANGES IN DEMAND OR SUPPLY
DEMAND AND SUPPLY CAN STILL CHANGE!
CHANGES IN DEMAND CHANGES IN SUPPLY
Key Words:
Buyers/Consumers
Determinants:
Population
Income of Consumers
Change in Consumer Tastes
Price of Substitutes
Price of Complementary Goods
Key Words:
Sellers/Suppliers/
Producers/Manufacturers
Determinants:
Price of Inputs
# of Firms in the Industry
Business Taxes
Technology
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SHIFTS IN EQUILIBRIUM PRICE
When Demand or Supply changes, Equilibrium
price changes
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INCREASE IN DEMAND
Increases Equilibrium
Price & Quantity
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DECREASE IN DEMAND
Decrease in
Equilibrium Price and
Quantity
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WHEN SUPPLY DECREASES
Increases Equilibrium
Price
Decreases Equilibrium
Quantity
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WHEN SUPPLY INCREASES
Equilibrium Price
Decreases
Equilibrium Quantity
Increases
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SHORTAGE
Situation in which quantity
demanded is greater than
quantity supplied
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SURPLUS
Situation in which
quantity supplied is
greater than
quantity demanded
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USE THE FORCE! (OF THE MARKET)
We don’t like shortages or surpluses!
The market wants to correct itself and adjust
the price to get back to equilibrium!
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PRICE CONTROLS
Government gets involved
To help consumers?
Protect interest groups?
Creates:
Price Ceilings
Price Floors
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PRICE CEILING
Legal maximum price
that may be charged
for a good or services
Often creates
shortages
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PRICE FLOOR
Legal Minimum price
that may be charged
for a good or service
Often creates
surpluses
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