Supply and Demand at Work

21.3 & 21.4

What is Supply and Demand

• The amount of goods a producer is willing to sell at market prices.

• Opposite of demand• Law of Supply - suppliers offer more goods at

higher prices and less at lower prices• Profit: the reason suppliers offer goods and

services• Market Supply: all the supply available in a

given market

Why does supply change?

• Cost of resources• Productivity• Technology • Government Policies• Taxes• Subsidy: government payment for a certain

action.• Expectations• Number of Suppliers

Supply Elasticity

• How quickly suppliers can change supply• Inelastic: not able to change the supply quickly• Elastic: Able to change the supply quickly

Supply, Demand and Price

• Supply and Demand work together to create a price.

• Equilibrium price: the point where supply matches demand

• Surplus: Supply is greater than demand– Price is too high

• Shortage: demand is greater than supply– Price is too low.

Price Controls

• Government can regulate price if they feel forces of demand and supply are unfair.

• Price Ceiling - Maximum price set by the government that can be charged

• Price Floor – the minimum price that can be charged.

• Minimum Wage- lowest legal wage that can be paid to workers.

North Carolina’s Minimum Wage

Minimum Wage by State

Prices as Signals

• Consumer Price Index: measure the costs of goods over times

• Prices tell us what people are buying.• Prices are neutral• Prices are flexible• Prices show freedom of choice• Prices are familiar