Putting Supply and Demand
together
 Combine the supply curve and the demand
curve and we can find a market price
Market Equilibrium: the intersection of the
supply and demand curves. This should be the
market price/quantity. If it is not, then
supply, demand, and price will all move
towards the equilibrium point.
This price is above
equilibrium (to high) it
should work towards the EQ
This price is below
equilibrium (to low) it
should work towards the EQ
Surplus: when supply exceeds
demand, prices will naturally
fall.
Shortage: when demand exceeds
supply, prices will naturally
rise.
All the mechanics of Demand
and Supply still are in
effect…now we are just
putting the two together.
SO…………………
Any change in the price of the product
DOES NOT shift (move) either curve!
This is a change in QUANTITY supplied and
QUANTITY demanded
All the reasons I gave you
(non-price determinants)
will shift the
curves…increase shift curves
to the right and decrease
shift curves to left…
Changes in SUPPLY
Changes in DEMAND
Shifting Demand
Shifting Supply
Price Floor
Price Ceilings
What are Market Failures?
 When a market partially forms
 Markets are present but very limited
 When free markets fail to develop
 Markets are created but do not spread out to
meet increasing demand
 When markets fail to allocate resources
efficiently
 The company or market itself collapses
Types of Market Failures
 Market Inefficiency
 Monopolies
 Missing/Incomplete




Markets
Negative
Externalities
Property Rights
Unstable Markets
Inequality
Market Inefficiency
 Markets fail to allocate resources in an
inefficient manner.
 Firms wasting resources
 New business comes in and tries to under cut
the competition
Monopolies
 Control of a market by one firm, two firms
(duopoly) or a small group (oligopoly)
 Can cause unfair practices and prices driving buyers
and competition out of the market
 Google?
 Google owns about 67% of the global search market
 Google search, Google Earth, Google Blogger, Google
Translate, Google Docs, Google Calendar, Google Sites,
Gmail, Google Plus, and since 2006, Youtube.
Missing/Incomplete Markets
 Markets fail to form or partially form
 Most cases the government supplies these
 Public Goods such street lights, bridges,
public schools
 Not profitable enough to attract sellers
Negative Externalities
 The negative cost incurred
by third parties as a result
of a market transaction
 Pollution (environmental
and noise)
 Usually regulation will
follow to lower the cost of
the externality
 Sun Chips biodegradable
bag…
Property Rights
 When the market utilizes resources that are
not private property
 Can result in a lack of resources or conflict
that make it inefficient
 Mining in public areas or on water
 International fishing
Unstable Market
 Market instability usually due to external
factors or tastes
 Food would be one without Subsidies/ Price
Floors/ etc.
 Swai/Basa , Vietnamese catfish
Inequality
 Markets may
have a higher
income target
consumer and
thus limit growth
based on income
gap
 Creation of a new
watch at
$250,000 a unit
Supply Elasticity
Elasticity of supply is
mostly based on time
 How quickly can producers adjust to changes
in demand
 Can you think of any examples of something
that the supply is inelastic?
 Can you think of a product that is perfectly
elastic?
 Why do producers need time to react to
market changes?
Elasticity
 This is a measurement of how responsive we are
to changes in price.
Unit Elastic
 When % change in demand is about the same as
% change in price.
Elastic products
 This means that a change in price will create a
significant change in demand
 % change in demand > % change in price
Inelastic products
 Change in price
yields little to no
response change in
demand.
 % change in
demand < % change
in price