Published on February 3, 2008
Author: matt
Source: slideshare.net
Economics, Chapter Five Market Clearing Price (Balance in the Market)
Market-Clearing Price (MCP)/ Equilibrium Price (e) The price @ which sellers want to sell & buyers want to buy. -Supply = Demand Market “clears” $30 s $25 $20 $15 MCP $10 $5 d $0 1 2 3 4 5 6 7
The price @ which sellers want to sell & buyers want to buy.
-Supply = Demand
Market “clears”
When Supply ≠ Demand Shortage : P < MCP amt. supplied is less than amt. demanded Buyers compete to consume Buyers are willing to pay more $ Results of Shortages: Buyers reduce amount of goods & svcs they want Producers work to increase the amount they produce As long as price is less than market-clearing price, buyers increase demand Eventually market-clearing will be re-established
Shortage : P < MCP
amt. supplied is less than amt. demanded
Buyers compete to consume
Buyers are willing to pay more $
Results of Shortages:
Buyers reduce amount of goods & svcs they want
Producers work to increase the amount they produce
As long as price is less than market-clearing price, buyers increase demand
Eventually market-clearing will be re-established
When Supply ≠ Demand Surplus: P > MCP. Sellers want to sell more than consumers will buy Results of surplus: Sellers begin to compete more for consumers SALE: offer goods & svcs @ lower prices Price begins to fall, demand increases Sellers reduce the amount they want to sell as price falls Market-Clearing then is reached as demand = supply again
Surplus: P > MCP. Sellers want to sell more than consumers will buy
Results of surplus:
Sellers begin to compete more for consumers
SALE: offer goods & svcs @ lower prices
Price begins to fall, demand increases
Sellers reduce the amount they want to sell as price falls
Market-Clearing then is reached as demand = supply again
Role of Prices Send Signals Info. to both buyers and sellers Ration Determine who will get good or svc. Auctions, as well as decisions whether or not to buy Motivate Can get Buyers to Demand, or Producers to Supply No $ in it, not worth supplying!
Send Signals
Info. to both buyers and sellers
Ration
Determine who will get good or svc.
Auctions, as well as decisions whether or not to buy
Motivate
Can get Buyers to Demand, or Producers to Supply
No $ in it, not worth supplying!
Changes in Price & Production S & D can go & As S & D changes , so does MCP! If S faster than D, in MCP If D faster than S, in MCP If S at same rate as D, no change in MCP
S & D can go &
As S & D changes , so does MCP!
If S faster than D, in MCP
If D faster than S, in MCP
If S at same rate as D, no change in MCP
Changes in Price & Production (cont’d) Taco Market (supply ) Floods have killed 1/2 of the nation's cattle (less beef). How will this effect the taco market in the state? $3 MCP2 P R $2 MCP1 I C $1 E 0 1 2 3 4 5 6 # TACOS
Taco Market (supply )
Floods have killed 1/2 of the nation's cattle (less beef). How will this effect the taco market in the state?
$3 MCP2
P
R $2 MCP1
I
C $1
E
0 1 2 3 4 5 6
# TACOS
Changes in Price & Production (cont’d) Demand can also cause a in Market-Clearing Price. What happens if all of a sudden medical research shows that eating tacos makes you smart: $3 P R $2 I C $1 E 0 1 2 3 4 5 6 # TACOS
Demand can also cause a in Market-Clearing Price. What happens if all of a sudden medical research shows that eating tacos makes you smart:
$3
P
R $2
I
C $1
E
0 1 2 3 4 5 6
# TACOS
Reasons for M.C.P. in technology: tech. in supply & M.C.P. (how?) in consumer taste: consumers want of product in demand & M.C.P. (how?) weather: bad weather destroying crops in supply & M.C.P. (how?)
in technology: tech. in supply & M.C.P. (how?)
in consumer taste: consumers want of product in demand & M.C.P. (how?)
weather: bad weather destroying crops in supply & M.C.P. (how?)
Price Quantity Demand Supply Market Clearing or Equilibrium Price P 1 P 2
Price Quantity Demand Supply Market Clearing or Equilibrium Price P 1 Q 1 P 2 Q S Q D Shortage
Price Quantity Demand Supply Market Clearing or Equilibrium Price P 1 Q 1 P 2 Q S Q D Shortage
Price Quantity Demand Supply Market Clearing or Equilibrium Price P 1 Q 1 P 2 Q S Q D Surplus
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