Combining Supply & Combining Supply & DemandDemand

6.16.1

Delaney FelixDelaney Felix

Poe - 5Poe - 5

Balancing the marketBalancing the market

Demand is how much someone is Demand is how much someone is willing to pay for an itemwilling to pay for an item

Supply is how much producers are Supply is how much producers are willing to sellwilling to sell

The two of these should bring The two of these should bring the market to a good balance, the market to a good balance, called equilibriumcalled equilibrium

EquilibriumEquilibrium

* * EquilibriumEquilibrium – the point of – the point of balance between price and balance between price and quantity quantity

At equilibrium, the market for a At equilibrium, the market for a product should be stableproduct should be stable

DisequilibriumDisequilibrium

* * DisequilibriumDisequilibrium is when the market is when the market is at any state except equilibrium.is at any state except equilibrium.

REAL LIFEREAL LIFE- During the holidays there is always During the holidays there is always an an ““itit”” item to have. Usually these item to have. Usually these run out because every single family run out because every single family wants one. This is an example of wants one. This is an example of disequilibriumdisequilibrium

Excess DemandExcess Demand

* * Excess demandExcess demand - When - When quantity demanded is more than quantity demanded is more than the quantity that is suppliedthe quantity that is supplied

As long as this happens, As long as this happens, supplies will continue to raise supplies will continue to raise the pricethe price

Excess SupplyExcess Supply

* * Excess supplyExcess supply - When quantity - When quantity supplied exceeds what is demanded.supplied exceeds what is demanded.

When there is excess supply, When there is excess supply, prices tend to lower continuously.prices tend to lower continuously.

What else could we What else could we

expect to pay less than fifty cents expect to pay less than fifty cents for?for?

Government InterventionGovernment Intervention

* * Price ceilingPrice ceiling – the maximum – the maximum price that can price that can legallylegally be put on a be put on a product.product.

* * Price floorPrice floor – the minimum price – the minimum price that must be charged for an item. that must be charged for an item.

http://youtu.be/Ffcd6Wdkn5w

Rent ControlRent Control REAL LIFEREAL LIFE * * Rent controlRent control – an experiment on putting – an experiment on putting price ceilings on apartments. Rent control price ceilings on apartments. Rent control reduces quality and quantity of apartments, reduces quality and quantity of apartments, which ended up hurting the poor people that which ended up hurting the poor people that they were trying to help. they were trying to help.

Landlords used to be able to keep the Landlords used to be able to keep the defects of an apartment away from a possible defects of an apartment away from a possible tenant until after they moved in, and once tenant until after they moved in, and once the tenant noticed them the landlord was the tenant noticed them the landlord was allowed to threaten to raise the price of allowed to threaten to raise the price of their lease. Rent control ended this, their lease. Rent control ended this, letting tenants ask about defects without letting tenants ask about defects without fearing the rent increases.fearing the rent increases.

QuizQuiz

Which of the key terms ended up Which of the key terms ended up helping future tenants? helping future tenants?

T/F Disequilibrium is when T/F Disequilibrium is when everything is in a good balance?everything is in a good balance?

T/F Excess demand cause prices to T/F Excess demand cause prices to fall?fall?

T/F Price floor is the most you T/F Price floor is the most you can charge for a product?can charge for a product?

T/F Supply is how much people need T/F Supply is how much people need of a product?of a product?