1 Chapter 3 Demand and Supply

2 What is the Law of Demand? When price increases the quantity demanded decreases

3 What is a 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 Demand Curve? Graphically depicts the relationship between price and quantity demanded

D e m a n d C u r v e P1 Q1 P2 Q2 Price Quantity

Individual Demand Curves for Fish Claudia’s Demand for Fish

Individual Demand Curves for Fish Chris’s Demand for Fish

9 What is Market Demand? The horizontal sum of all individual demands in a market

Market Demand Curve: Individual 1 P1P1 Q1Q1 Individual 2 P1P1 Q2Q2 Market Demand P1P1 Q 1 +Q 2 P2P2

11 Price Quantity Market Demand Curve Claudia’s Demand Chris’s Demand

12 Price Quantity Market Demand Curve 10 9

Gottheil 2e Comprehensive (Exhibit 3.1), Micro (Exhibit 3.1), Macro (Exhibit 3.1) ©2000 South-Western College Publishing Individual 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 Curve 9

15 What is a 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? Depicts the relationship between price and quantity supplied

Supply Curve Supply Curve P1 Q1 P2 Q2 Price Quantity S

19 What is Market-Day Supply? A market situation in which the quantity of a good supplied is fixed, regardless of price

Market-Day Supply Curve for Fish Supply Schedule for Fish for the Market-Day Quantity (1,000) Price

Supply Curve Supply Curve S P1 Q P2 21

Market Demand Curve for Fish Demand Schedule & Curve for Fish: Quantity (1,000) Price Excess Supply Excess Demand Equilibrium

23 What is Equilibrium Price? The price that equates the quantity demanded and the quantity supplied

24 Price Quantity Market-Day, Short-Run and Long-Run Supply 10 9 Market-Day Supply Short-Run Supply Long-Run Supply

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 S P3 Q3 P1 Surplus P2 Shortage 26 Or Excess Supply Or Excess Demand

Fish Market with change in Demand:

28 Price Quantity Market Demand Curve 10 9 S D

Fish Market with change in Demand:

30 Price Quantity (1,000s) Increase in Demand: 10 9 S D D'

Fish Market with change in Demand:

32 Price Quantity (1,000s) Decrease in Demand: 10 9 S D D"

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 Price 0 P1P1 P2P2 Q1Q1 Q2Q2 Change in Quantity Demanded

Quantity Price 0 P1P1 Q1Q1 Q2Q2 Change in Demand D D1D1

Fish Market with change in Supply:

40 Price Quantity (1,000s) Increase in Supply: 10 9 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 Price Quantity (1,000s) Increase in Demand & Supply: 10 9 S D S' D'

43 Price Quantity (1,000s) Increase in Demand & Supply: 10 9 S D S' D'

44 Price Quantity (1,000s) Increase in Demand & Supply: 10 9 S D S' D'

45 Price Quantity (1,000s) Increase in Demand & Decrease in Supply: 10 9 S D S' D'

46 Price Quantity (1,000s) Increase in Demand & Decrease in Supply: 10 9 S D S' D'

47 Price Quantity (1,000s) Increase in Demand & Decrease in Supply: 10 9 S D S' D'