1.2.6 Unit contentStudents should be able to:• Describe equilibrium price and quantity and explain how they are determined• Use supply and demand diagrams to depict excess

supply and excess demand• Show that shifts in demand and supply curves will change equilibrium• Analyse how market forces eliminates excess demand and excess supply• Use supply and demand diagrams to show how shifts

in demand and supply curves cause the equilibrium price and quantity to change in real-world situations

Markets

Bringing buyers (demanders) and sellers (suppliers) together creates a ________

Markets do not require buyers and sellers to physically meet (e.g. internet selling).

Their purpose is to set a _______ that is acceptable to both buyers and sellers.

Demand and supply

In order to analyse how a market works we need to look at demand and supply curves on the same diagram.

The demand curve slopes ____________, indicating that more will be purchased as price falls, while the supply curve slopes _____________, indicating that more sellers enter the market as prices rise.

Draw a demand and supply curve on the same graph.

Market equilibrium

The price system should produce equilibrium where demand and supply are _______ and there is no immediate tendency for the markets to change.Where does this occur in your graph? It is expected that markets will reach market equilibrium.So, what happens at market equilibrium?

Colouring in and disequilibrium

Plot a demand and supply curve and then mark on a high price – above equilibrium.What do you notice (explain your graph)?

Disequilibrium START

When a market is not in equilibrium (disequilibrium), then there will probably be a reaction by buyers or sellers. At a high price, the supply ____________ demand B and suppliers will not be able to sell all they have produced at this price. This is known as _______ supply as supply exceeds demand and if suppliers want to sell the product then they will have to ________ the price.

More colouring in: excess diagram!

Draw a diagram to show excess demand.Comment on your diagram.

Movement or shift recap?

Draw a demand and supply curve.

What will cause a movement along the curves?

What will cause a curve to shift?

Question

Plot a demand and supply curve and mark on the equilibrium price and quantity

 

Assume individual incomes have risen so, at the same market price, they can afford to buy more. What impact will this have?

 

Plot the new equilibrium and explain your graph.

Derived demand

Changes in the conditions of supply or demand will create a temporary disequilibrium situation that may affect other markets.

If the demand for central heating increases (a consumer goods market) then the demand for __________________ will also increase (a factor of production). This is an example of derived demand.

Complementary demand

An associated market to housing is the market for _____________ and a fall in the demand for houses is likely to lead to a fall in the demand for ______________. This is an example of complementary demand.

Demand and supply question

Price Demand Supply

1 900 500

2 800 600

3 700 700

4 600 800

5 500 900

Plot this, where is equilibrium?

Equilibrium occurs at _____ units and the equilibrium price is _____