Combining Supply and
Demand
In this lesson, students will be able to identify
factors which lead to equilibrium or disequilibrium in
a market.
Students will be able to identify and/or define the
following terms:
Equilibrium
Disequilibrium
Excess Demand
Excess Supply
Price Ceiling
Price Floor
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Do you notice the point where supply
and demand intersect?
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Equilibrium
• When creating a demand curve and a
supply curve, there is a point where the
curves intersect. This point is the
equilibrium point.
• Equilibrium occurs when the quantity
demanded equals the quantity supplied.
• A market is stable at equilibrium.
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If a seller has seven donuts on the shelf
at $1 per donut, and consumers only want
seven donuts at that price, then the market
is at equilibrium.
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Disequilibrium
• A market is at disequilibrium when the
quantity demanded does not equal the
quantity supplied.
• If quantity demanded is greater than
quantity supplied, excess demand occurs.
• If quantity supplied is greater than quantity
demanded, excess supply occurs.
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Low prices encourage consumers. Low
prices can create excess demand.
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Excess Demand
• Excess demand occurs when the actual
price is lower than the equilibrium price.
• Low prices encourage demand.
• To fix this problem, prices must be raised.
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If every parent wants to purchase this toy
for the holidays, excess demand can occur.
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However, if no one is buying, then
excess supply occurs.
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Excess Supply
• Excess supply occurs when quantity
supplied is greater than quantity
demanded.
• The actual price is higher than the
equilibrium price.
• To fix this problem, prices must be
lowered.
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The day after Valentine’s Day, consumers
will not pay high prices for Valentine’s
candy.
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Price Ceiling
• A price ceiling is the maximum price that
can be legally charged for a good or
service.
• The government interferes with market
equilibrium when it creates a price ceiling.
• Rent control is an example of a price
ceiling.
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Rent control is an example of a price
ceiling.
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Price Floor
• A price floor is the minimum price that can
be legally charged for a good or service.
• The government interferes with market
equilibrium when it creates a price floor.
• Minimum wage is an example of a price
floor.
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The minimum wage is an example of
a price floor.
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Questions for Reflection:
• When does equilibrium occur in a market?
• Why does excess demand create
disequilibrium in the market?
• Define excess supply.
• Why does the government place a price
ceiling on rent?
• How does rent control help some but hurt
others?
• Provide an example of a price floor.
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