Market equilibrium

1
Market equilibrium
Price per lb.
At a price of 5.50, consumers can buyall they
wish to buy.Sellers may sell allthey wish at
that price as well.
Salmon Market
S
?
5.50
D
0
Quantity (lbs)
800
2
Effect of a change in demand
Demand could shift right due to
Price per lb.
Salmon Market
S

• Increase in the price of red snapper, orange
  roughy, etc.
• Increase in consumer incomes.
• Change of preferences

?2
6.50
?1
5.50
D2
D1
0
Quantity (lbs)
800
920
3
Effect of a change in demand, part 2
Demand could shift left due to
Price per lb.
Salmon Market
S

• Decrease in the price of red snapper, orange
  roughy, etc.
• Decrease in consumer incomes.
• Change of preferences

?2
6.50
?1
5.50
D2
D1
0
Quantity (lbs)
800
920
4
Effect of a change in supply
Supply could shift right due to
Price per lb.
Salmon Market
S1

• Increase in thenumber of (fisherman) sellers.
• Decrease in input prices (fuel, bait, wages,
  transportation, etc.)
• Better fishing

S2
?1
5.50
?2
4.50
D1
0
Quantity (lbs)
800
1000
5
Effect of a change in supply, part 2
Supply could shift left due to
Price per lb.
S2
Salmon Market
S1

• Decrease in thenumber of (fisherman) sellers.
• Increase in input prices (fuel, bait, wages,
  transportation, etc.)
• Poor fishing

?2
6.25
?1
5.50
D1
0
800
670
Quantity (lbs)
6
Effect of a change in demand and supply
Price per bushel
Corn
S1
In this case, price remainsunchanged
S2
?1
?2
P1
D2
D1
0
Quantity (bushels)
q1
q2
7
Effect of a change in demand and supply, part 2
Price per bushel
Corn
S1
Now both price and quantity change
S2
P2
?2
?1
P1
D2
D1
0
q1
q2
Quantity (bushels)
8
Effect of a change in demand and supply, part 3
Since the shiftbackward of D is of the same
magnitude as the shift of S, P is unchanged.
Price per bushel
Corn
S1
S0
?0
?1
P1
D1
D0
0
q1
q0
Quantity (bushels)
9
Shortages and surpluses
At a price of 4, QS QD by 36 videos. When
theprice is 2, QD SDby 36 videos
Videos
Price
Supply
Surplus
4
3
2
Demand
Shortage
48
66
84
0
Quantity
10
Effect of Price Floors and Ceilings
These aregovernment-imposedrestrictions on
market price
Examples

• Department of Agriculture loan rates for rice,
  corn, peanuts, wheat, sorghum, etc.
• The minimum wage.
• Rent controls in NYC

11
A price floor in the market for wheat
A price floor of 3.20 per bushel willproduce a
surplusof 300 bushels.But what ifthe floor
were set at 2.35?
2 Hard KC Wheat
P/BU
S
Surplus
3.20
2.52
D
bushels
550
700
850
0
12
The rental housing market in New York City
Monthly Rent
S
If the Rent Control Board sets a ceiling of 900
per month, 3,000 apartment-seekers wont be able
to find one.
1,120
900
Shortage
D
Rental Units
0
4,000
5,700
7,000