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Chapter 6 discusses how market prices are determined through consumer and producer interactions, leading to equilibrium. It explains the concepts of surplus and shortage when prices are not at equilibrium and how shifts in demand and supply affect prices. Additionally, it addresses government interventions like price floors and ceilings, and the emergence of black markets in response to such controls.

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0% found this document useful (0 votes)
7 views12 pages

15545899

Chapter 6 discusses how market prices are determined through consumer and producer interactions, leading to equilibrium. It explains the concepts of surplus and shortage when prices are not at equilibrium and how shifts in demand and supply affect prices. Additionally, it addresses government interventions like price floors and ceilings, and the emergence of black markets in response to such controls.

Uploaded by

Jabir Mire
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 6

Prices Bring Markets to Balance


Market Price: The price that willing consumers pay to a willing producer
for the sale of a good or service.

• Market Price is found by looking at consumer and producer interactions.


• Consumers send signals to producers about whether a product is priced
too high or too low by how much they buy of that product.
What Happens When the Price isn’t
“Right”?
Disequilibrium: Formed when Surplus
market price is set above or below
the equilibrium price
● Leads to excess
demand or excess
supply
Excess Supply – Supply exceeds
demand. Price is too high
Excess Demand – Demand
exceeds supply. Price too low

Shortage
Excess Supply ---> Surplus
Excess surplus

• To get back to equilibrium, price


would need to go down
Excess Demand ---> Shortages
Excess demand

• To get back to equilibrium, price


would need to rise
What are the 3 questions that need to be asked to
figure out the changes in equilibrium prices?

• Does the event affect demand, supply, or both?


• Does the event shift the demand or supply curve to the right or
left?
• What is the new equilibrium price and quantity?
-How have they changed as a result of the event?
How Price is Affected by Demand Shift
How does the price get affected when demand
shifts?
Demand increases & Price increases
• Assume supplier increase supply or there
would be a shortage

Demand decreases & Price decreases


• Assume supplier decreases supply or there
would be a surplus
How Price is Affected by Supply Shift

How does the price get affected when supply


shifts?
Supply increases & Price decreases
• Assume consumers buy more or there would
be a surplus

Supply decreases & Price increases


• Assume consumers buy less or there would
be a shortage
What if both demand & supply shift?
What do the demand & supply shifts tell us
about the market?
Changes in prices ….
● Tells producers how much to produce
● Tells producers how much to charge
● Shows buyer’s interest (demand) for a product
What Happens when the Government is Involved?

• The government will get involved


when it believes prices are too low.

Government affects prices:


Price Floor = setting a MINIMUM price

Example: minimum wage

• It can be difficult to stop government


interference due to political influences from
those who it benefits.
What Happens when the Government is Involved?

• The government will get involved


when it believes prices are too high.

Government affects prices:


Price Ceilings = setting a MAX price

Example: Rent Control for Apartments

• It can be difficult to stop government


interference due to political influences
from those who it benefits.
Black Markets
Black markets: an illegal market where goods are traded at prices or
quantities higher than those set by law.

• They are usually created in response to government controls that can


create shortages or surpluses

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