How do markets determine prices? MICROECONOMICS Law of Supply Law of Demand ‘There is a direct, or positive, relationship between the There is an inverse or negative relationship PR eee RU Ue between the price of a good or service and the CRU ge OS CUT UT RRUe or ee Price=P Qs = Quantity supplied Price=P Qd = Quantity demanded Teak ea) Testi cea) Chocolate Bar Supply Curve Chocolate Bar Demand Curve If Pd from $2.00 to $1.60 If PY from $2.00 to $1.60 OS STG) Un 400 bars a Ia ite 400 500 Quantity Beem Determinants of Supply Determinants of Demand = a o A Input prices mC] AMT A Prices of related goods a aa ie PN Tan OM gO ACN ONT Ce AMS aC CLC NT NTT Shifting the Supply Curve Shifting the Demand Curve NNR CH a CTCF ON TMT UC Re PUL Sse UC Oe LURE LLP ATT LUM UR MURS e CTY RORY OY YN F 2 ad % TET Quantity Market Equilibrium ‘When a market is in equilibrium, the quantity demanded equals the quantity ‘supplied at the price that clears the market. This is the equilibrium price. CTEM es CUFT) a = (od) i = | 2 Quantity & Ata) oa " (Qs) = firs] ee aC ET CN TUT Ue SEL OTIC RE AU ULE) LLC STU cara CMC ARM LCR yA ee CCU SOM 2ST = eit STAN