Price determination ZOE LAI Contents ▪ Review- demand and supply curves ▪ Equilibrium price and quantities(sales) ▪ Disequilibrium price and excess demand and excess supply ▪ Summary and homework ▪ Reference ▪ Q&A Drawing the demand and supply curves Price of Ice-Cream Cone Quantity of Cones Demanded Quantity of Cones Supplied $0.00 19 cones 0 cones 0.50 16 0 1.00 13 1 1.50 10 4 2.00 7 7 2.50 4 10 3.00 1 13 ▪Demand curves ▪Supply curves Market equilibrium市场均衡 Equilibrium Equilibrium price (market clearing price) the price that balances quantity supplied and quantity demanded a situation in which the market price has reached the level at which quantity supplied equals quantity demanded Equilibrium quantity the quantity supplied and the quantity demanded at the equilibrium price Equilibrium price is the price at which: A. Everything that is produced is sold B. The amount consumers demand is equal to the amount sellers supply C. The number of buyers equals the number of sellers D. Supply exceeds demand Quick check What happens when the market price is NOT equal to the equilibrium price ▪ the market price is higher than the equilibrium price ▪ the market price is less than the equilibrium price Market disequilibrium A market is in disequilibrium if the quantity consumers wish to buy is not matched by the quantity producers wish to sell D S At price P1 there is an excess Price per unit P1 supply. Price will need to fall to persuade consumers to buy more and for producers to contract their supply. At price P2 there is an excess demand. Price will need to rise to reduce consumer demand and to encourage producers to supply more. Pe P2 S D 0 Quantity traded per period 1.a market is operating with a disequilibrium price, what must this mean? A. Demand and supply are not equal B. Shortages do not exist C. The price mechanism is not working D. There is no opportunity cost involved Quick check 2. A market is experiencing a shortage. What will happen to price and sales as the market moves back to equilibrium? Price Sales A. Decrease Fall B. Decrease Rise C. Increase Fall D. Increase Rise 3. If there is excess demand in a market, what is the relationship between price and equilibrium price, and sales and equilibrium sales? Price Sales A. Above equilibrium Above equilibrium B. Above equilibrium Below equilibrium C. Below equilibrium Below equilibrium D. Below equilibrium Above equilibrium Summary & homework ▪ Equilibrium price and quantities ▪ Disequilibrium prices and excess demand and supply in a market Reference • Complete economics for Cambridge IGCSE & 0 level course book • Principles of economics 7th edition by N., Gregory and Mankiw • https://blog.publix.com/publix/tag/icecream/ • Complete economics for Cambridge IGCSE & 0 level Teacher resource kit Q&A 📧： jm5220@outlook.com THANKS a lot
