date: november 28, 2011 topic: combining supply and demand. aim: how did supply and demand meet? do...
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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?
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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
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BALANCE TO THE FORCE!
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BALANCE
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►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.
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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.
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► 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.
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►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.
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►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.
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►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.
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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.
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►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
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►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
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SUMMARY:SUMMARY:How does supply How does supply
and demand and demand create balance in create balance in the marketplace?the marketplace?