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Title: Supply And Demand
Description: about supply and demand along with graphs
Description: about supply and demand along with graphs
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The Market Forces of
Supply and Demand
Copyright © 2004 South-Western
• Supply and demand are the two words that
economists use most often
...
• Modern microeconomics is about supply,
demand, and market equilibrium
...
• The terms supply and demand refer to the
behavior of people
...
Copyright © 2004 South-Western
MARKETS AND COMPETITION
• Buyers determine demand
...
Copyright © 2004 South-Western
Competition: Perfect and Otherwise
• Perfect Competition
• Products are the same
• Numerous buyers and sellers so that each has no
influence over price
• Buyers and Sellers are price takers
• Monopoly
• One seller, and seller controls price
Copyright © 2004 South-Western
Competition: Perfect and Otherwise
• Oligopoly
• Few sellers
• Not always aggressive competition
• Monopolistic Competition
• Many sellers
• Slightly differentiated products
• Each seller may set price for its own product
Copyright © 2004 South-Western
DEMAND
• Quantity demanded is the amount of a good that
buyers are willing and able to purchase
...
Copyright © 2004 South-Western
The Demand Curve: The Relationship
between Price and Quantity Demanded
• Demand Schedule
• The demand schedule is a table that shows the
relationship between the price of the good and the
quantity demanded
...
Copyright © 2004 South-Western
Figure 1 Catherine’s Demand Schedule and Demand
Curve
Price of
Ice-Cream Cone
$3
...
50
1
...
2
...
50
1
...
50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2
...
Copyright © 2004 South-Western
Market Demand versus Individual Demand
• Market demand refers to the sum of all
individual demands for a particular good or
service
...
Copyright © 2004 South-Western
Shifts in the Demand Curve
• Change in Quantity Demanded
• Movement along the demand curve
...
Copyright © 2004 South-Western
Changes in Quantity Demanded
Price of IceCream
Cones
B
$2
...
A
1
...
• Caused by any change that alters the quantity
demanded at every price
...
• As income increases the demand for an inferior
good will decrease
...
00
An increase
in income
...
50
Increase
in demand
2
...
50
1
...
50
D1
0 1
2 3 4 5 6 7 8 9 10 11 12
D2
Quantity of
Ice-Cream
Cones
Copyright © 2004 South-Western
Consumer Income
Inferior Good
Price of IceCream Cone
$3
...
50
An increase
in income
...
00
Decrease
in demand
1
...
00
0
...
• When a fall in the price of one good increases the
demand for another good, the two goods are called
complements
...
• Law of Supply
• The law of supply states that, other things equal, the
quantity supplied of a good rises when the price of
the good rises
...
Copyright © 2004 South-Western
Ben’s Supply Schedule
Copyright © 2004 South-Western
The Supply Curve: The Relationship between
Price and Quantity Supplied
• Supply Curve
• The supply curve is the graph of the relationship
between the price of a good and the quantity
supplied
...
00
1
...
2
...
00
1
...
00
0
...
increases quantity of cones supplied
...
• Graphically, individual supply curves are
summed horizontally to obtain the market
supply curve
...
• Caused by a change in anything that alters the
quantity supplied at each price
...
00
A rise in the price
of ice cream
cones results in a
movement along
the supply curve
...
00
0
1
5
Quantity of
Ice-Cream
Cones
Copyright © 2004 South-Western
Shifts in the Supply Curve
• Change in Supply
• A shift in the supply curve, either to the left or right
...
Copyright © 2004 South-Western
Figure 7 Shifts in the Supply Curve
Price of
Ice-Cream
Cone
Supply curve, S3
Decrease
in supply
Supply
curve, S1
Supply
curve, S2
Increase
in supply
0
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning
Table 2 Variables That Influence Sellers
Copyright©2004 South-Western
SUPPLY AND DEMAND
TOGETHER
• Equilibrium refers to a situation in which the
price has reached the level where quantity
supplied equals quantity demanded
...
• On a graph, it is the price at which the supply and
demand curves intersect
...
• On a graph it is the quantity at which the supply and
demand curves intersect
...
00, the quantity demanded
is equal to the quantity supplied!
Copyright © 2004 South-Western
Figure 8 The Equilibrium of Supply and Demand
Price of
Ice-Cream
Cone
Supply
Equilibrium
Equilibrium price
$2
...
50
2
...
• There is excess supply or a surplus
...
Copyright © 2004 South-Western
Equilibrium
• Shortage
• When price < equilibrium price, then quantity
demanded > the quantity supplied
...
• Suppliers will raise the price due to too many buyers
chasing too few goods, thereby moving toward
equilibrium
...
00
1
...
Copyright © 2004 South-Western
Three Steps to Analyzing Changes in
Equilibrium
• Decide whether the event shifts the supply or
demand curve (or both)
...
• Use the supply-and-demand diagram to see how
the shift affects equilibrium price and quantity
...
Hot weather increases
the demand for ice cream
...
50
2
...
resulting
in a higher
price
...
and a higher
quantity sold
...
• A movement along a fixed supply curve is called a
change in quantity supplied
...
• A movement along a fixed demand curve is called a
change in quantity demanded
...
An increase in the
price of sugar reduces
the supply of ice cream
...
50
Initial equilibrium
2
...
resulting
in a higher
price of ice
cream
...
and a lower
quantity sold
...
• In a competitive market, there are many buyers
and sellers, each of whom has little or no
influence on the market price
...
• According to the law of demand, as the price of a
good falls, the quantity demanded rises
...
• In addition to price, other determinants of how
much consumers want to buy include income, the
prices of complements and substitutes, tastes,
expectations, and the number of buyers
...
Copyright © 2004 South-Western
Summary
• The supply curve shows how the quantity of a
good supplied depends upon the price
...
Therefore,
the supply curve slopes upward
...
• If one of these factors changes, the supply curve
shifts
...
• At the equilibrium price, the quantity demanded
equals the quantity supplied
...
Copyright © 2004 South-Western
Summary
• To analyze how any event influences a market,
we use the supply-and-demand diagram to
examine how the even affects the equilibrium
price and quantity
...
Copyright © 2004 South-Western
Title: Supply And Demand
Description: about supply and demand along with graphs
Description: about supply and demand along with graphs