supply and demand together at last!. supply and demand these two laws are directly contrary to each...
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Supply and Demand together at last!
![Page 2: Supply and Demand together at last!. SUPPLY and demand These two laws are directly contrary to each other. If suppliers want high prices, but buyers want](https://reader036.vdocuments.mx/reader036/viewer/2022062421/56649c8f5503460f94948735/html5/thumbnails/2.jpg)
SUPPLY and demand• These two laws are directly contrary to each
other. If suppliers want high prices, but buyers want low
prices, how on earth does anything get traded?
• The point where:quantity supplied = quantity demanded
supply demand
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Supply and demand
• Market Equilibrium (aka market clearing price)• The point at which sellers are willing to sell as
much as buyers are willing to buy• Qd=Qs
EOC study guideSupply & Demand #4
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Moving Toward Equilibrium
• Surplus is the condition in which the quantity supplied of a good is greater than the quantity demanded. Surpluses occur only at prices above equilibrium.
• Shortage is the condition in which the quantity demanded of a good is greater than the quantity supplied. Shortage occur only at prices below equilibrium price.
EOC study guideSupply & Demand #7
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Supply and Demand Interactions
Relationship of quantity suppliedMarket
(Qs) to quantity demanded (Qd) Condition
Qs Qd Surplus
Qd Qs Shortage
Qd = Qs
Equilibrium
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Supply and demand
• Equilibrium or market clearing price• How difficult is it to find this point?
• It is the single most difficult aspect of business
• All trial and error
• “In the Chips” Activity• You will need a piece of paper and a pencil
![Page 7: Supply and Demand together at last!. SUPPLY and demand These two laws are directly contrary to each other. If suppliers want high prices, but buyers want](https://reader036.vdocuments.mx/reader036/viewer/2022062421/56649c8f5503460f94948735/html5/thumbnails/7.jpg)
$0.00
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Surplus (a.k.a. excess supply):when quantity supplied is greater than quantity demanded
SurplusExample: If P = $5,
then QD = 9 lattes
and QS = 25 lattes
resulting in a surplus of 16 lattes
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Surplus (a.k.a. excess supply):
Facing a surplus, sellers try to increase sales by cutting price.
This causes QD to rise
Surplus
…which reduces the surplus.
and QS to fall…
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Surplus (a.k.a. excess supply):
Facing a surplus, sellers try to increase sales by cutting price.
This causes QD to rise and QS to fall.
Surplus
Prices continue to fall until market reaches equilibrium.
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What happens to price when there is a surplus?
• Surplus• Suppliers cannot sell all of their goods• Inventory grows• Expensive to store
• What happens to price?
• It lowers to the equilibrium price
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Shortage (a.k.a. excess demand):
when quantity demanded is greater than quantity supplied
Example: If P = $1,
then QD = 21 lattes
and QS = 5 lattes
resulting in a shortage of 16 lattes
Shortage
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Shortage (a.k.a. excess demand):
Facing a shortage, sellers raise the price,
causing QD to fall
…which reduces the shortage.
and QS to rise,
Shortage
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Shortage (a.k.a. excess demand):
Facing a shortage, sellers raise the price,
causing QD to falland QS to rise.
Shortage
Prices continue to rise until market reaches equilibrium.
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What happens to price when there is a shortage?
• Shortage• Price is below equilibrium causing a high
demand for the good and a low supply• Buyers will pay higher prices for goods• Higher prices motivate suppliers to
produce more
• Price will rise until it reaches equilibrium
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