1
Chapter 3Chapter 3Chapter 3Chapter 3
Demand and SupplyDemand and Supply
2
What is the Law of What is the Law of Demand?Demand?What is the Law of What is the Law of Demand?Demand?
When price increases the quantity demanded decreases
3
What is a What is a Demand Schedule?Demand Schedule?What is a What is a Demand Schedule?Demand Schedule?
Shows the specific quantity of a good or service that people are willing and able to buy at different prices
4
Price Quantity Demanded
$10 0
$9 1
$8 2
$7 3
$6 4
$5 5
5
What is a What is a Demand Curve?Demand Curve?What is a What is a Demand Curve?Demand Curve?
Graphically depicts the relationship between price and quantity demanded
Demand Curve
Demand Curve
P1
Q1
P2
Q2
Pri
ce
Quantity
Individual Demand Curves for FishIndividual Demand Curves for Fish
Price QuantityDemanded
10 09 18 27 36 45 54 63 72 81 9
Claudia’s Demand for Fish
7
0 1 2 3 4 5 6 7 8
9
1
2
345
6
8
10
9 10
Individual Demand Curves for FishIndividual Demand Curves for Fish
Price QuantityDemanded
10 19 38 57 76 95 114 133 152 171 19
Chris’s Demand for Fish
7
0 1 2 3 4 5 6 7 8
9
1
2
345
6
8
10
9 10
9
What is Market Demand?What is Market Demand?What is Market Demand?What is Market Demand?
The horizontal sum of all individual demands in a market
Market Demand Curve:Market Demand Curve:
Individual 1
P1
Q1
Individual 2
P1
Q2
Market Demand
P1
Q1+Q2
P2
11
Pri
ce
Quantity
7
0 1 2 3 4 5 6 7 8
9
1
2
345
6
8
0 1 2 3 4 5 6 7 8
9
1
2345
78
6
Market Demand CurveMarket Demand Curve
Claudia’s Demand Chris’s Demand
10 10
9 109 10
12
Pri
ce
Quantity
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Market Demand CurveMarket Demand Curve
10
9 10
Gottheil 2e Comprehensive (Exhibit 3.1), Micro (Exhibit 3.1), Macro (Exhibit 3.1)©2000 South-Western College Publishing
Individual Demand Curves for FishIndividual Demand Curves for Fish
8
Gottheil 2e Comprehensive (Exhibit 3.2), Micro (Exhibit 3.2), Macro (Exhibit 3.2)©2000 South-Western College Publishing
The Market Demand CurveThe Market Demand Curve
9
15
What is a What is a Supply Schedule?Supply Schedule?What is a What is a Supply Schedule?Supply Schedule?
Shows the specific quantity of a good or service that suppliers are willing and able to provide at different prices
Price Quantity Supplied
$5 0
$6 1
$7 2
$8 3
$9 4
$10 5
17
What is a Supply Curve?What is a Supply Curve?What is a Supply Curve?What is a Supply Curve?
Depicts the relationship between price and quantity supplied
Supply Curve
Supply Curve
P1
Q1
P2
Q2
Pri
ce
Quantity
S
19
What is What is Market-Day Supply?Market-Day Supply?What is What is Market-Day Supply?Market-Day Supply?
A market situation in which the quantity of a good supplied is fixed, regardless of price
Market-Day Supply Curve for FishMarket-Day Supply Curve for Fish
Price QuantitySupplied
10 60009 60008 60007 60006 60005 60004 60003 60002 60001 6000
Supply Schedule for Fish for the Market-Day
7
0 1 2 3 4 5 6 7 8
9
1
2
345
6
8
10
9 10Quantity (1,000)
Pri
ce
Sup
ply
Cur
veS
uppl
y C
urve
S
P1
Q
P2
21
Market Demand Curve for FishMarket Demand Curve for Fish
Price QuantityDemanded
10 35009 40008 45007 50006 55005 60004 65003 70002 75001 8000
Demand Schedule & Curve for Fish:
7
0 1 2 3 4 5 6 7 8
9
1
2
345
6
8
10
9 10Quantity (1,000)
Pri
ce Excess Supply
Excess Demand
Equilibrium
23
What isWhat is Equilibrium Price? Equilibrium Price?What isWhat is Equilibrium Price? Equilibrium Price?
The price that equates the quantity demanded and the quantity supplied
24
Pri
ce
Quantity
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Market-Day, Short-Run and Long-Run SupplyMarket-Day, Short-Run and Long-Run Supply
10
9 10
Market-Day SupplyShort-Run Supply
Long-Run Supply
Short-Run:Short-Run:
The time interval during which suppliers are able to change the quantity of some but not all the resources they use to produce goods and services.
Long-Run:
The time interval during which suppliers are able to change the quantity of all the resources they use to produce goods and services.
D
SP3
Q3
P1 Surplus
P2Shortage
26
Or Excess Supply
Or Excess Demand
Price QuantitySupplied
InitialQuantity
Demanded10 8500 35009 8000 40008 7500 45007 7000 50006 6500 55005 6000 60004 5500 65003 5000 70002 4500 75001 4000 8000
Fish Market with change in Demand:
28
Pri
ce
Quantity
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Market Demand CurveMarket Demand Curve
10
9 10
S
D
Price QuantitySupplied
InitialQuantity
Demanded
Increase inQuantity
Demanded10 8500 3500 55009 8000 4000 60008 7500 4500 65007 7000 5000 70006 6500 5500 75005 6000 6000 80004 5500 6500 85003 5000 7000 90002 4500 7500 95001 4000 8000 10000
Fish Market with change in Demand:
30
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand:Increase in Demand:
10
9 10
S
DD'
Price QuantitySupplied
InitialQuantity
Demanded
Increase inQuantity
Demanded
Decrease inQuantity
Demanded10 8500 3500 5500 15009 8000 4000 6000 20008 7500 4500 6500 25007 7000 5000 7000 30006 6500 5500 7500 35005 6000 6000 8000 40004 5500 6500 8500 45003 5000 7000 9000 50002 4500 7500 9500 55001 4000 8000 10000 6000
Fish Market with change in Demand:
32
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Decrease in Demand:Decrease in Demand:
10
9 10
S
DD"
Change in Quantity Demanded:Change in Quantity Demanded:
A change in quantity demanded of a good that is caused solely by a change in the price of that good.
Change in Demand:
A change in quantity demanded of a good that is caused by factors other than the price of that good.
Factors that cause changes in Demand:
Changes in Income.
Changes in Taste.
Changes in the Prices of Other Goods.
Substitute Goods:
Goods that can replace each other. When the price of one increases (decreases), the demand for the other increases (decreases).
Complementary Goods:
Goods that are generally used together. When the price of one increases (decreases), the demand for the other decreases (increases)
Factors that cause changes in Demand:
Changes in Income.
Changes in Taste.
Changes in the Prices of Other Goods.
Changes in the expectations about future prices.
Changes in the population size.
Quantity
Pri
ce
0
P1
P2
Q1 Q2
Change in Quantity DemandedChange in Quantity Demanded
Quantity
Pri
ce
0
P1
Q1 Q2
Change in DemandChange in Demand
DD1
Price QuantityDemanded
InitialQuantitySupplied
Increase inQuantitySupplied
10 3500 8500 95009 4000 8000 90008 4500 7500 85007 5000 7000 80006 5500 6500 75005 6000 6000 70004 6500 5500 65003 7000 5000 60002 7500 4500 55001 8000 4000 5000
Fish Market with change in Supply:
40
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Supply:Increase in Supply:
10
9 10
S
D
S'
Factors that cause changes in Supply:
Changes in Technology.
Changes in Resource Price.
Changes in the Prices of Other Goods.
Changes in the Number of Suppliers.
42
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand & Supply:Increase in Demand & Supply:
10
9 10
S
D
S'
D'
43
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand & Supply:Increase in Demand & Supply:
10
9 10
S
D
S'
D'
44
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand & Supply:Increase in Demand & Supply:
10
9 10
S
D
S'
D'
45
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand & Decrease in Supply:Increase in Demand & Decrease in Supply:
10
9 10
S
D
S'
D'
46
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand & Decrease in Supply:Increase in Demand & Decrease in Supply:
10
9 10
S
D
S'
D'
47
Pri
ce
Quantity (1,000s)
0 1 2 3 4 5 6 7 8
9
1
2
34
5
6
7
8
Increase in Demand & Decrease in Supply:Increase in Demand & Decrease in Supply:
10
9 10
S
D
S'
D'
Top Related