JA Economics
Market Clearing Price
Chapter 5
Why it Matters
 Changes
economy
 Markets
 Prices
and adjustments in a market
allocate scarce resources
help change and adjust the
economy
Market Demand
Price per Gallon
$7
$6
$5
$4
$3
$2
$1
$0
10
20
30
40
Millions of Gallons per Week
Market Supply
Price per Gallon
$7
$6
$5
$4
$3
$2
$1
$0
10
20
30
40
Millions of Gallons per Week
Market Clearing Price
Price per Gallon
$7
$6
$5
$4
$3
$2
$1
$0
10
20
30
40
Millions of Gallons per Week
Market-Clearing Price
 quantity
 Does
supplied = quantity demanded
the market stay at that price?
 Allows
the market to continue
Shortages
 Market
competition
 Not
in production
 Not
available on the shelf
 DEMAND
> SUPPLY
Market Shortage
Price per Gallon
$7
$6
$5
$4
$3
$2
$1
$0
10
20
30
40
Millions of Gallons per Week
Market Surplus
 Price
is above market clearing price
 Sellers
compete
Market Surplus
Price per Gallon
$7
$6
$5
$4
$3
$2
$1
$0
10
20
30
40
Millions of Gallons per Week
http://www.desmoinesgasprices.com/Price_By_County.aspx
A Surplus or Something
Scarce?
 Difference
between wants and demands
 Money
 Unsatisfied
wants
Functions of Prices in a Market
System
 Sends
 Ration
signals
scarce goods
 Motivator
Prices Send Signals
 Market
prices are high
 Market
prices are low
 Market
prices are low
 Markets
prices are high
Prices Ration
 Who
gets the good?
 Market
clearing price
Prices Motivate
 Incentives
to producers
 Consumers
 Producers
buy at a higher price
are willing to produce more
Changes in Prices and
Production
 Market
clearing price changes
 Incentive
to producers changes
 Incentive
to buyers changes