Lesson Plan

Market Equilibrium and Applications




I. Market equilibrium

- Definitions
- equilibrium
- stable equilibrium
- How does the market attain equilibrium?
- excess demand or a shortage
- price competition among consumers
- excess supply or a surplus
- price competition among suppliers


II. Predictions about equilibrium P and Q

- increase in D => what happens to equilibrium P and Q?
- decrease in D => what happens to equilibrium P and Q?
- increase in S => what happens to equilibrium P and Q?
- decrease in S => what happens to equilibrium P and Q?
- increase in D and increase in S => what happens to equilibrium P and Q?
- increase in D and decrease in S => what happens to equilibrium P and Q?
- decrease in D and increase in S => what happens to equilibrium P and Q?
- decrease in D and decrease in S => what happens to equilibrium P and Q?
- examples


III. Applications

- Price Ceilings
- definition
- what is an effective price ceiling?
- equilibrium
- enforceable price ceilings?
- black markets
- cheating by suppliers

- Price Floors
- definition
- what is an effective price floor?
- equilibrium
- supporting an effective price floor
- government subsidies
- what is the effect if price floor is not supported?