• Combined supply and demand schedule combines market supply and market demand schedule.

  • Equilibrium is a point of balance between price and quantity.

  • To find equilibrium price and equilibrium quantity, look for a price at which the quantity supplied is equal to the quantity demanded.

  • Buyers find ample supply, while firms are willing to sell and find enough buyers.

  • If market price or quantity is not at equilibrium, it’s at disequilibrium.

  • Disequilibrium: Occurs when the quantity supply does not equal the quantity demanded.

  • Excess Demand: Quantity demanded is more than the supplied quantity.

  • Excess Supply: Quantity supplied exceeds the quantity demanded.

  • When price in the market is below the equilibrium price, excess demand takes place. Lower prices encourage buyers and discourage sellers.

  • Price has risen to close gap, suppliers find the highest price that the market will bear.

  • When a market is at disequilibrium, prices are flexible and the market pushes to reach the equilibrium.

  • Sellers do not like to waste resources on excess supply and want to raise profits to raise money.

  • Government intervention: Occasionally the government steps in.

  • Governments can set up a price ceiling, or a max price that can be legally charge for goods. Governments can also create price floor, or the minimum price for a good or service.

Price Ceiling

  • Government sets price ceiling on items that are considered essential

  • Rent control is a kind of price ceiling.

    • Introduced to prevent inflation in the 1940s and continued after World War II.

    • Today, rent controls are imposed with the hope of helping poor households.

    • Rent control reduces the quantity and quality of housing, so it both helps and harms households.

  • Price ceilings stop prices from reaching equilibrium.

Price Floors

  • Minimum price set by the government. The government wants sellers to receive the minimum reward.

  • Minimum wage: Minimum price that an employer can pay a worker for a hour of work.

  • If minimum wage is set above the market equilibrium rate, there can be a decrease in employment.

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