SECTION 1

REACHING EQUILIBRIUM

• The point where demand and supply come together is called the equilibrium
• To find the equilibrium price and quantity on a graph, locate the point at which the supply curve and the demand curve intersect.

MARKET BENEFITS

• In any market, supply and demand will be equal at only one price and one quantity
• When a market is at equilibrium, both buyers and sellers benefit

DISEQUILIBRIUM

• If the market or quantity supplied is anywhere but at the equilibrium, the market is in a state of disequilibrium
• Disequilibrium occurs when quantity supplied is not equal to quantity demanded in a market
• Shortage- exists when the quantity demanded in a market is more than the quantity supplied

PRICE CEILING

• The government can impose a price ceiling, or a maximum price that can be legally charged for a good or service
• The government places price ceilings on some goods that are considered "essential" and might become too expensive for some consumers

RENT CONTROL

• Rent control - price ceilings placed on apartment rents, to prevent inflation during a housing crisis
• The price ceiling increases the quantity demanded but decreases the quantity supplied with rent control

PRICE FLOORS

• A price floor is a minimum price, set by the government, that must be paid for a good or service
• A well known price floor is minimum wage - the minimum price that an employer can pay a worker for one hour of labor