Combining Supply and Demand

1
Combining Supply and Demand

• In this lesson, students will be able to
  identify factors which lead to equilibrium or
  disequilibrium in a market.
• Students will be able to identify and/or define
  the following terms
• Equilibrium
• Disequilibrium
• Excess Demand
• Excess Supply
• Price Ceiling
• Price Floor

2
Do you notice the point where supply and demand
intersect?
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Equilibrium

• When creating a demand curve and a supply curve,
  there is a point where the curves intersect.
  This point is the equilibrium point.
• Equilibrium occurs when the quantity demanded
  equals the quantity supplied.
• A market is stable at equilibrium.

4
If a seller has seven donuts on the shelf at 1
per donut, and consumers only want seven donuts
at that price, then the market is at equilibrium.
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Disequilibrium

• A market is at disequilibrium when the quantity
  demanded does not equal the quantity supplied.
• If quantity demanded is greater than quantity
  supplied, excess demand occurs.
• If quantity supplied is greater than quantity
  demanded, excess supply occurs.

6
Low prices encourage consumers. Low prices can
create excess demand.
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Excess Demand

• Excess demand occurs when the actual price is
  lower than the equilibrium price.
• Low prices encourage demand.
• To fix this problem, prices must be raised.

8
If every parent wants to purchase this toy for
the holidays, excess demand can occur.
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However, if no one is buying, then excess supply
occurs.
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Excess Supply

• Excess supply occurs when quantity supplied is
  greater than quantity demanded.
• The actual price is higher than the equilibrium
  price.
• To fix this problem, prices must be lowered.

11
The day after Valentines Day, consumers will not
pay high prices for Valentines candy.
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Price Ceiling

• A price ceiling is the maximum price that can be
  legally charged for a good or service.
• The government interferes with market equilibrium
  when it creates a price ceiling.
• Rent control is an example of a price ceiling.

13
Rent control is an example of a price ceiling.
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Price Floor

• A price floor is the minimum price that can be
  legally charged for a good or service.
• The government interferes with market equilibrium
  when it creates a price floor.
• Minimum wage is an example of a price floor.

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The minimum wage is an example of a price floor.
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Questions for Reflection

• When does equilibrium occur in a market?
• Why does excess demand create disequilibrium in
  the market?
• Define excess supply.
• Why does the government place a price ceiling on
  rent?
• How does rent control help some but hurt others?
• Provide an example of a price floor.