Market Equilibrium
and Policy
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-1
Mowing Supply
70
S
Price (dollars)
60
50
40
30
20
10
0
0
5
10
15
20
Quantity (per week)
25
30
D
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-2
Mowing Demand
70
Price (dollars)
60
50
40
30
20
10
D
0
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-3
The Market for Mowing (2)
70
S
Price (dollars)
60
50
40
30
20
10
D
0
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-4
The Market for Mowing (3)
Price (dollars)
70
65
60
S
50
40
30
20
10
D
0
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-5
The Market for Mowing (4)
Price (dollars)
70
65
60
S
50
40
30
20
10
D
0
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-6
The Market for Mowing (5)
Price (dollars)
70
65
60
S
50
40
30
20
10
0
D
5
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-7
The Market for Mowing (6)
Price (dollars)
70
65
60
S
50
40
30
20
10
0
D
5
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-8
The Market for Mowing (7)
70
S
Price (dollars)
60
50
40
35
30
20
10
D
0
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-9
Market Disequilibrium—Shortage
Price
S
P1
Shortage
D
Qs
Quantity
Qd
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5-10
Market Disequilibrium—Shortage (2)
Market = Qs - Qd
If negative, we
have a shortage
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-11
Market Disequilibrium—Surplus
S
Surplus
Price
P2
D
QS
QD
Quantity
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5-12
Market Disequilibrium—Surplus (2)
Market = Qs - Qd
If positive, we
have a surplus
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5-13
Market Conditions
QD
> QS
Shortage
QD
= QS Equilibrium
QD
< QS
Surplus
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5-14
Change in Demand
Price (dollars)
70
65
60
S
50
40
30
D1
20
10
0
D
5
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-15
Change in Demand (2)
Price (dollars)
70
65
60
S
50
40
30
D1
20
10
0
D
5
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-16
Change in Demand (3)
Price (dollars)
70
65
60
S
50
40
30
D1
20
10
0
D
5
0
5
10
15
20
25
30
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-17
What happens when supply and demand change?
• It will depend on many things.
– Shapes of the supply and demand curves
– Intensity of the change
– Direction of the change
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-18
Price Ceiling
•Definition: A maximum
legal price at which a
good, service, or resource
can be sold.
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5-19
Pizza Market
Pizza: $3
$6/ /Slice
Slice
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5-20
Pizza Market—Price Ceiling
7
S
Price (dollars)
6
5
4
3
2
Shortage
1
0
Qsc
Qe
D
Qdc
Quantity (per week)
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-21
Price Ceiling Illustration
------------- PRICE CEILING -------------
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-22
Price Floor Illustration
-------------- PRICE FLOOR -------------Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-23
Price Floor
•Definition: A minimum
legal price at which a
good, service, or resource
can be sold.
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-24
Price Floors—Minimum Wage
S
Surplus Labor
Wage
Wf
We
D
Qd
Qe
Quantity
Qs
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5-25
A Tax on Suppliers
St
20
S
Price (dollars)
18
16
14
Tax = $4
12
10
8
6
4
2
0
D
10
20
30
40
50
60
Quantity (thousands)
70
80
90
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
100
5-26
A Tax on Suppliers
St
20
S
Price (dollars)
18
16
14
12
10
8
6
4
2
0
D
10
20
30
40
50
60
Quantity (thousands)
70
80
90
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
100
5-27
A Tax on Suppliers
Tax Revenue =
Tax amount * Qt
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-28
A Tax on Suppliers
St
Tax Revenue
20
S
Price (dollars)
18
16
14
12
10
8
6
4
2
0
D
10
20
30
40
50
60
Quantity (thousands)
70
80
90
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
100
5-29
A Tax on Demanders
S
20
Price (dollars)
18
Tax = $4
16
14
12
10
8
6
4
2
0
Dt
10
20
30
40
50
60
Quantity (thousands)
70
D
80
90
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
100
5-30
A Tax on Demanders
S
Tax Revenue
20
Price (dollars)
18
16
14
12
10
8
6
4
2
0
Dt
10
20
30
40
50
60
Quantity (thousands)
70
D
80
90
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
100
5-31
Incidence of Taxation
Tax on Suppliers
• Government gets $4/unit
• Consumers pay $12/unit
• Producers receive $8/unit
Tax on Demanders
• Government gets $4/unit
• Consumers pay $12/unit
• Producers receive $8/unit
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-32