Economics Chapter 6 Bringing Supply and Demand Together

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EconomicsChapter 6Bringing Supply and Demand
Together
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Balancing the Market

• Equilibrium

Supply
Price
Equilibrium
Demand
Quantity
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Market Disequilibrium

• There are two causes for disequilibrium
• Excess Demand
• Excess Supply

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• In some cases the government steps in to control
  prices. These interventions appear as price
  ceilings and price floors.

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Rent Control Price Ceiling
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Minimum Wage Price Floor
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Changes in Market Equilibrium

• Shifts in Supply
• Technology, Cost, Government, Imports,
  Expectations, of suppliers
• Shifts in Demand
• Income, Expectations, Population,
  Trends/Advertising, Substitutes, Complements

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Shifts in Supply

• Understanding a Shift

Old Equilibrium
New Equilibrium
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Excess Supply

• Surplus

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A Fall in Supply
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Shifts in Demand

• Excess Demand
• shortage
• Search Costs
• A Fall in Demand

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Analyzing Shifts in Supply and Demand
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Analyzing Shifts in Supply and Demand
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The Role of Prices in a Free Market
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Advantages of Prices

• Prices provide a language for buyers and sellers.
• 4 Advantages

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4 Advantages

1. Prices as an Incentive
2. Signals
3. Flexibility
4. Price System is "Free"

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Efficient Resource Allocation

• Resource Allocation

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Market Problems

• Imperfect competition
• Spillover costs
• Imperfect information