Essential Question: What is
the right price?
 Putting
_____ and ________ together
 If you are a seller, how do you know how
much to charge for your product?
 You need to find the point where quantity
supplied meets quantity demanded
 See the chart (figure 6.1) on p. 134
 If
sellers supply more than people want to
buy, you have a _____________
 If sellers can’t keep up with _________,
shortages occur
 Why
is it so important for a market to be in
equilibrium?
 __________ who are willing to pay the
equilibrium price will find plenty of goods in
stores to purchase
 ___________ selling at the equilibrium price
won’t have trouble finding buyers for their
products
 ___________________________________!
 When
supply and demand ________________
 Leads to _________ or ___________



If a company can’t keep up with the number of
people who want to buy its product, what does that
tell the company about the ____________________
If ________________________ at that price, what is
that telling the company?
If buyers _______________________ at the price
they are willing to pay, what is that telling them?
 Sometimes
the government
_____________________ above or below
where the market would set it
 Examples:
 _________ control
 Flood _____________
 __________________
 Crop subsidies for _____________

Disequilibrium due to:
1. increased _______________
 New ___________
 Changes in _______________
 Changes in consumer _________________
 Or….
 2. increased ________________
 _______________________
 Production problems
 So what happens? New producers enter the market to meet the
increased demand (and cash in!)
 Quantity demanded ________________
 __________________________
 Higher prices ___________________________
 Production problems _______________
 New suppliers increase the _______________
 The shortage is over and a ________________________ is reached
In a _____________ system, prices ____________
for distributing goods and services throughout
the economy
 This means that _________ is based on who has
the ability and willingness to buy the goods and
services
 Allocating resources based on prices is the most
_______________________________
 Serve as a language to ___________ between
______ and ________ (gives feedback on
incentives and economic conditions)
 The alternative would be to have the
government decide (centrally planned economy)
thorough rationing, etc.

 Provides
a common language; buyers and
sellers understand what a price of
$.99/lb or $2.39/gallon means
 Increasing prices ___________________
 Decreasing prices ____________________
 Book compares prices to a traffic light
 Prices are flexible and help the market
stay flexible
 For example, can avoid supply shock
 A price system is FREE!
________________ on running a program
to decide who gets what
 Besides
a price system…
 __________________________
 __________________________
 __________________________

1. The price system doesn’t always work…
 What if there is ______________________?


Few firms selling the good or service
Much higher influence over price
2. What about _____________________________?
 We learned about these in chapter 3. They are market
failure because the costs and benefits aren’t properly
assigned
 3. Imperfect __________________________
buyers and sellers can’t make the best choices if
they don’t know everything they need to know about a
product. This is part of why we have consumer
protection and disclosure laws.