the quantity supplied exceeds (is less than) the quantity demanded 10. Explain why a surplus (shortage) will cause the price to fall (rise) in the market. THE ECONOMIST'S TOOL KIT Finding the Equilibrium Price and Quantity Label the vertical axis as the price per unit of Choose a price above the equilibrium price Step one: Step two: the good or service and the horizontal axis as the and label it P1. Note that the quantity demanded QD is quantity of the good or service per time period. Draw a less than the quantity supplied QS and there is a downward-sloping demand curve and label it D. Draw surplus. The size of the surplus is the horizontal dotted an upward-sloping supply curve and label it S. Label line between QD and QS. the price where the quantity demanded equals the quantity supplied as P* and the corresponding quantity as Q*. Choose a price below the equilibrium price Note that in a system without Step three: Step four: and label it P2. Note that the quantity supplied QS is government interference the conditions of surplus and less than the quantity demanded QD and there is a shortage drawn above is only temporary. After a shortage. The size of the shortage is the horizontal period of time the forces of surplus and dotted line between QS and QD. shortage will automatically restore the equilibrium price and quantity as originally drawn in step one. COMPLETION QUESTIONS 1. The states that is an inverse relationship between the price and the quantity demanded, ceteris paribus. 2. A movement along a stationary demand curve caused by a change in price is called a (an) . 3. A (an) is one that consumers buy more of when their income increases. 4. states that there is a direct relationship between the price and the quantity supplied, ceteris paribus. 5. A movement a stationary supply curve in response to a change in price is called a (an) . 6. When the price of a good is greater than the equilibrium price, there is an excess
the quantity supplied exceeds (is less than) the quantity demanded 10. Explain why a surplus (shortage) will cause the price to fall (rise) in the market. THE ECONOMIST'S TOOL KIT Finding the Equilibrium Price and Quantity Step one: Label the vertical axis as the price per unit of the good or service and the horizontal axis as the quantity of the good or service per time period. Draw a downward-sloping demand curve and label it D. Draw an upward-sloping supply curve and label it S. Label the price where the quantity demanded equals the quantity supplied as P* and the corresponding quantity as Q*. Step two: Choose a price above the equilibrium price and label it P1. Note that the quantity demanded QD is less than the quantity supplied QS and there is a surplus. The size of the surplus is the horizontal dotted line between QD and QS. Step three: Choose a price below the equilibrium price and label it P2. Note that the quantity supplied QS is less than the quantity demanded QD and there is a shortage. The size of the shortage is the horizontal dotted line between QS and QD. Step four: Note that in a system without government interference the conditions of surplus and shortage drawn above is only temporary. After a period of time the forces of surplus and shortage will automatically restore the equilibrium price and quantity as originally drawn in step one. COMPLETION QUESTIONS 1. The states that is an inverse relationship between the price and the quantity demanded, ceteris paribus. 2. A movement along a stationary demand curve caused by a change in price is called a (an) . 3. A (an) is one that consumers buy more of when their income increases. 4. states that there is a direct relationship between the price and the quantity supplied, ceteris paribus. 5. A movement a stationary supply curve in response to a change in price is called a (an) . 6. When the price of a good is greater than the equilibrium price, there is an excess
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