2 SUPPLY AND DEMAND I: HOW MARKETS WORK. Copyright © 2006 Thomson Learning 4 The Market Forces of...
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Transcript of 2 SUPPLY AND DEMAND I: HOW MARKETS WORK. Copyright © 2006 Thomson Learning 4 The Market Forces of...
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SUPPLY AND DEMAND I: HOW MARKETS WORK
Copyright © 2006 Thomson Learning
44The Market Forces of Supply and Demand
Copyright © 2006 Thomson Learning
Figure 1 Catherine’s Demand Schedule and Demand Curve
Copyright © 2004 South-Western
Figure 3 Shifts in the Demand Curve
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
Quantity ofIce-Cream Cones
Increasein demand
Decreasein demand
Demand curve, D3
Demandcurve, D1
Demandcurve, D2
0
Table 1 Variables That Influence Buyers
Copyright©2004 South-Western
Figure 5 Ben’s Supply Schedule and Supply Curve
Copyright©2003 Southwestern/Thomson Learning
Figure 7 Shifts in the Supply Curve
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
Quantity ofIce-Cream Cones
0
Increasein supply
Decreasein supply
Supply curve, S3
curve, Supply
S1Supply
curve, S2
Table 2 Variables That Influence Sellers
Copyright©2004 South-Western
Figure 8 The Equilibrium of Supply and Demand
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
0 1 2 3 4 5 6 7 8 9 10 11 12Quantity of Ice-Cream Cones
13
Equilibriumquantity
Equilibrium price Equilibrium
Supply
Demand
€ 2.00
Figure 9 Markets Not in Equilibrium
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
0
Supply
Demand
(a) Excess Supply
Quantitydemanded
Quantitysupplied
Surplus
Quantity ofIce-Cream
Cones
4
€ 2.50
10
2.00
7
Copyright © 2006 Thomson Learning
Equilibrium
• Surplus• When price > equilibrium price, then quantity
supplied > quantity demanded. • There is excess supply or a surplus.
• Suppliers will lower the price to increase sales, thereby moving toward equilibrium.
Figure 10 How an Increase in Demand Affects the Equilibrium
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
0 Quantity of Ice-Cream Cones
Supply
Initialequilibrium
D
D
3. . . . and a higherquantity sold.
2. . . . resultingin a higherprice . . .
1. Hot weather increasesthe demand for ice cream . . .
2.00
7
New equilibrium€ 2.50
10
Figure 11 How a Decrease in Supply Affects the Equilibrium
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
0 Quantity of Ice-Cream Cones
Demand
Newequilibrium
Initial equilibrium
S1
S2
2. . . . resultingin a higherprice of icecream . . .
1. An increase in theprice of sugar reducesthe supply of ice cream. . .
3. . . . and a lowerquantity sold.
2.00
7
€ 2.50
4
Table 4 What Happens to Price and Quantity When Supply or Demand Shifts?
Copyright©2004 South-Western
