8/28
Supply and Demand Together
See Graph that used the combined supply and demand schedules to graph the supply and demand
curves for Gasoline – WB pg 28
Supply Demand Curve Graph shows:
1. Equilibrium
a. point where the quantity supplied is equal to the quantity demanded
b. Also known as the Market Clearing Price
c. Shown by “E”
2. Surplus
a. situation where the quantity supplied is greater than the quantity demanded at a
given price
b. On your graph for gasoline, look at the price of $3.50
i. Ask: What is the quantity supplied? What is quantity demanded?
ii. At 3.50 quantity demanded is 35 – quantity supplied is 55
iii. So… there will be 20 million gallons of gasoline left over
iv. QS >QD
c. Occurs above equilibrium and tends to push prices down toward equilibrium
d. When there is a surplus, the govt will put a price floor on the product – the price
will not push down toward equilibrium – ex: minimum wage (surplus of workers
compared to jobs available) or agricultural product that has produced greatly for
that year
3. Shortage
a. situation in which the quantity demanded is greater than the quantity supplied
b. On your graph for gas, look at a price of $2.50
i. Ask: What is quantity demanded? What is the quantity supplied?
ii. At 2.50 quantity demanded is 55 – quantity supplied is 35
iii. So…We are demanding more than is being supplied
iv. QS<QD
c. Shortages appear below equilibrium and tend to push prices up toward
equilibrium
d. Price ceiling comes into play when there are shortages and the govt steps in for
the welfare of society – ex: rent control – price cannot go above a certain level so
will not get to equilibrium
surplus
P
S
Pe
E
shortage
D
Qe
Q
Pe = Equilibrium Price
Qe = Equilibrium Quantity
Changes in Equilibrium – see 4 graphs you drew for visual
What would happen to our equilibrium price and quantity if the demand for gasoline increased?
1. Increase in Demand = PE
2. Increase in Demand = QE
What would happen to our equilibrium price and quantity if the demand for gasoline decreased?
1. Decrease in Demand = PE
2. Decrease in Demand = QE
What would happen to our equilibrium price and quantity if the supply of gasoline increased?
1. Increase in Supply = PE
2. Increase in Supply = QE
What would happen to our equilibrium price and quantity if the supply of gasoline decreased?
1. Decrease in Supply = PE
2. Decrease in Supply = QE
Drawing Graphs – Questions to Ask
1.
2.
3.
4.
5.
Will this change supply or demand?
Which determinant was used?
Will this cause an increase or decrease of supply OR demand?
Draw new demand curve & label all parts
State what has happened to PE and QE.