Title: Equilibrium Price and Quantity
1Equilibrium Price and Quantity
2Demand for Pizzas
QUANTITY PRICE
0 30.00
100 25.00
200 20.00
300 15.00
400 10.00
500 5.00
3Demand Curve
- As the price rises, people are willing to buy
fewer pizzas. - As the price of pizza changes, move along the
demand curve
4Supply of Pizza
Quantity Price
0 5.00
100 10.00
200 15.00
300 20.00
400 25.00
500 30.00
600 35.00
5SUPPLY
- At a higher price the firm is willing to supply
more pizza. - As price of pizza changes, move along the supply
curve
6Equilibrium Price and Quantity
- At low prices, people will want to buy more than
people want to sell. - Competition to buy will drive prices up.
- At high prices, people will want to sell more
than people will want to buy - Competition to sell will drive prices down
- Only when the quantity people want to sell equals
the quantity people want to buy will price stop
changing be in equilibrium.
PRICE SUPPLY DEMAND
0.00 0 500
5.00 0 400
10.00 100 300
15.00 200 200
20.00 300 100
25.00 400 0
30.00 500 0
7Equilibrium price and quantity
- At low prices, people will want to buy more than
people want to sell. - Competition to buy will drive prices up.
- At high prices, people will want to sell more
than people will want to buy - Competition to sell will drive prices down
- Only when the quantity people want to sell equals
the quantity people want to buy will price stop
changing be in equilibrium.
8Changes in Equilibrium
- A given supply and demand relationship will
establish one equilibrium price and quantity. - That price and quantity will not change, so long
as none of the determinants of demand or supply
change. - If the determinants of demand or supply change,
then the equilibrium price and quantity will
change.
9Method of determining changes in equilibrium
price and quantity
- Draw the diagram for the market.
- Show the initial equilibrium price and quantity.
Label the axes. Be sure to indicate the product
that goes on the X axis (Check that the D curve
has a negative slope and the S curve has a
positive slope.) - Decide whether the change will affect the demand
curve or the supply curve. - Does it change how much people will wish to buy
at each price or how much they wish to sell?
Usually only one will shift. - Decide whether the change shifts the curve out,
or shifts the curve in. - Draw the new supply or demand curve and indicate
the new equilibrium price and quantity. - Write the explanation telling why the curve
shifted and gave a new equilibrium. - Read your diagram to make sure you are telling a
logical story.
10Examples for the blueberry market.
- Change The price of strawberries rises.
- Change The price of cherries, a close substitute
of blueberries, falls sharply - Change The price of whip cream, a complement of
blueberries, falls sharply - Change The cost of pesticides to control bugs on
the blueberry crop falls. - Change Incomes in Nova Scotia increase.
- Change wage rates paid to blueberry pickers
rise. - Change The cost of labour to harvest blueberries
rises sharply - Change A clever farmer designs a new blueberry
harvesting machine which can harvest berries more
efficiently
11The Blueberry Market Pe.45 Qe800
Price Supply Demand
0.05 0 1600
0.15 200 1400
0.25 400 1200
0.35 600 1000
0.45 800 800
0.55 1000 600
0.65 1200 400
0.75 1400 200
0.85 1600 0
12Response to fall in the cherry price
- Since the price of a substitute has fallen,
people want to buy fewer blueberries at every
price - Competition to sell drives price down
- New Pe .40
- New Qe 700
13Response to fall in pesticide price
Since the cost of production has fallen, people
want to sell more blue-berries at every price.
Competition to sell drives price down New Pe
.40 New Qe 900
14Response to rise in wage rates of blueberry
pickers
- Since the cost of production has risen, people
want to sell fewer blueberries at every price - Competition to buy at old price drives price up
- New Pe .50
- New Qe 700
15Response to rise in Canadian incomes
- Since incomes have risen, people want to buy more
blueberries at every price - Competition to buy at old price drives price up
- New Pe .50
- New Qe 700
16Response to better harvesting machine
- Since the cost of production has fallen, people
want to sell more blueberries at every price.
Competition to sell drives price down - New Pe .40
- New Qe 900