DateDate: November 28, 2011: November 28, 2011

TopicTopic: Combining supply and : Combining supply and demand. demand.

AimAim: How did supply and : How did supply and demand meet?demand meet?

Do NowDo Now: How do these owners : How do these owners of Five Guys Franchises have of Five Guys Franchises have

to cope with potential conflict?to cope with potential conflict?

Laws of Supply and Laws of Supply and DemandDemand. .

►The law of demand is centered The law of demand is centered around…?around…?

►The law of supply is centered around The law of supply is centered around …? …? PRICES

BALANCE TO THE FORCE!

BALANCE

►The point of The point of balancebalance between between price and quantity. price and quantity.

►At Equilibrium, the market for At Equilibrium, the market for a good is stable.a good is stable.

When supply and demand meet in the marketplace, a market price is created. 

This is equilibrium price. 

The best way to visualize equilibrium price to place the supply and demand curves in the same diagram.

► Equilibrium in a market occurs when the price balances Equilibrium in a market occurs when the price balances the plans of buyers and sellers.  the plans of buyers and sellers. 

► It sets the value of the product.It sets the value of the product.► Equilibrium price is represented by the point where the Equilibrium price is represented by the point where the

demand and supply curves intersect. demand and supply curves intersect.

►When the quantity supplied is When the quantity supplied is not equal to quantity not equal to quantity demanded in a market.demanded in a market.

►The market price of quantity The market price of quantity supplied is anywhere but at supplied is anywhere but at the equilibrium.the equilibrium.

►Quantity demanded is more than the Quantity demanded is more than the quantity supplied. quantity supplied.

►The actual price in a market is below The actual price in a market is below the equilibrium pricethe equilibrium price

►A low price encourages buyer and A low price encourages buyer and discourages sellers.discourages sellers.

►Quantity supplied exceeds Quantity supplied exceeds quantity demanded. quantity demanded.

►If the price is too high, then the If the price is too high, then the market will face a problem of market will face a problem of excess supply. excess supply.

Price CeilingPrice Ceiling:: Maximum price that can be Maximum price that can be legally charged for a good. legally charged for a good. (Considered (Considered “essential” & become too expensive)“essential” & become too expensive)

Price Floor:Price Floor: Minimum price for a good Minimum price for a good or service.or service.

►Motivated by a desire to help poor Motivated by a desire to help poor households by cutting housing costs. households by cutting housing costs.

►Reduces quantity/quality of housing. Reduces quantity/quality of housing. ►At a low price, seems inexpensive. At a low price, seems inexpensive. ►However price ceiling increases However price ceiling increases

quantity demanded but decreases quantity demanded but decreases quantity supplied. quantity supplied.

AS A PRICE CEILING

►Employer can pay a worker for an hour Employer can pay a worker for an hour of labor.of labor.

►Federal government sets a base level Federal government sets a base level for the minimum wage.for the minimum wage.

► If the minimum wage is set above the If the minimum wage is set above the market equilibrium wage rate, market equilibrium wage rate, decrease in employment.decrease in employment.

►Excess supply of labor.Excess supply of labor.

AS A PRICE FLOOR

SUMMARY:SUMMARY:How does supply How does supply

and demand and demand create balance in create balance in the marketplace?the marketplace?