Chapter 6. Remind me… What is the market? In the market, demand and supply interact Buyers +...

EquilibriumChapter 6

Seeking Equilibrium: Demand and Supply

The Interaction of Demand and Supply• Remind me… What is the market?

• In the market, demand and supply interact

• Buyers + Sellers market equilibrium

• In market equilibrium there is… equilibrium price

• Let’s visit Karen’s sandwich shop on pg. 164

Demand and Supply Schedule

Demand and Supply Curves

Reaching the Equilibrium Price

• Surplus• QS > QD

• Shortage• QD > QS

Equilibrium Price in Real Life• Remember those factors that make demand and

supply shift all around?

• Yea… About those…

• Disequilibrium – an imbalance between quantity demanded and quantity supplied• The process of finding equilibrium starts over again

Prices as Signals

How the Price System Works• Competitive pricing – producers sell at prices that

balance making highest profit and taking customers away from competitors

• Characteristics of the Price System• It’s neutral

• It’s market driven

• It’s flexible

• It’s efficient

I’m flexible!

Intervention in the Price System

Imposing Price Ceilings• Price ceiling – an established max price that

sellers can charge• Set below the E price; shortage happens

• Ex: football tickets & price ceilings

Setting Price Floors• Price floors – established minimum price buyers

must pay

• Ex: minimum wage as a price floor

• Minimum wage – minimum price an employers must pay for 1 hour of work

Rationing Resources and Products• Rationing – system where gov’t distributes goods

& services using factors other than price• During national emergencies like wartime

• Black market – where G & S are illegally bought & sold• Violates price controls & rationing

Ch. 9 – How are Wages Determined?• Price of labor is wages – payments workers receive in return for their

work

• Equilibrium wage – where # of workers needed = # of workers available

• Different jobs have different wage rates – the rates of pay for specific jobs or work performed

• Wage rate are determined by supply & demand; influence by four factors:• Human capital• Working conditions• Discrimination in the workplace• Glass ceiling

• Government actions• Minimum wage

The End!