Practice  Using the following demand schedule, graph the demand curve that represents the following data. Include: A title Label your axes (include units) Choose appropriate scales Label your demand curve Use a ruler! Use graph paper!

Supply  Is the quantities of a good or service that sellers are willing and able to sell at various prices in a particular period of time.

Supply Curve P QsQs (+) Positive Relationship At higher prices – suppliers see opportunity for greater profits Factor: Marginal cost of production -As additional units are produced, costs of producing one more unit rise -As the price rises, producers find it worthwhile to produce & sell more because any higher opportunity costs can be covered by the higher price.

Principles of Microeconomics, 2nd Canadian EditionSlide 1-4Copyright © 2005 McGraw-Hill Ryerson Limited FIGURE 3.1 Daily Supply Curve of Hamburgers in Downtown Toronto At higher prices, sellers generally offer more units for sale. The supply curve is upward sloping.

Remember:  A change along the curve indicates a change in price and a change in quantity supplied  A change of the curve (right or left) indicates an across the board change in supply

Supply Schedule Sketch the supply curve that represents the following data:

Activity  Wheat: Buyers and Sellers Game

Market Equilibrium  Equilibrium = “State of Rest” for economy  Assuming “other things” (such as weather, or incomes) remain the same, does any individual buyer / seller want to change their behavior ?  When all buyers and sellers are satisfied with their respective quantities at the market price, market is balanced  No pressure for change in price or quantity  The intersection of the supply and demand curves defines the unique price at which  Quantity Demanded = Quantity Supplied  Equilibrium has two components  The equilibrium price  The price the good sells and is bought for  The equilibrium quantity  The quantity that will be bought and sold

Principles of Microeconomics, 2nd Canadian EditionSlide 1-9Copyright © 2005 McGraw-Hill Ryerson Limited FIGURE 3.3 The Equilibrium Price and Quantity of Hamburgers in Downtown Toronto The equilibrium quantity and price of a product are the values that correspond to the intersection of the supply and demand curves for that product.

Principles of Microeconomics, 2nd Canadian EditionSlide 1-10Copyright © 2005 McGraw-Hill Ryerson Limited Disequilibria  Case I:Excess supply  Surplus  Price is higher than equilibrium price – so more units are supplied than buyers want to purchase  Some sellers are dissatisfied, and they will do something about it!  Case II:Excess demand  Shortage  Price is lower than equilibrium price – fewer units supplied than buyers want to purchase  Some buyers are dissatisfied, and they will do something about it!

Principles of Microeconomics, 2nd Canadian EditionSlide 1-11Copyright © 2005 McGraw-Hill Ryerson Limited Excess Supply When price exceeds the equilibrium price, there is excess supply, or surplus, that is equal to the difference between quantity supplied and quantity demanded. FIGURE 3.4 Supply Demand Excess supply = 8000 hamburgers/day

Principles of Microeconomics, 2nd Canadian EditionSlide 1-12Copyright © 2005 McGraw-Hill Ryerson Limited FIGURE 3.5 Excess Demand When price lies below the equilibrium price, there is excess demand, the difference between quantity demanded and quantity supplied. Supply Demand Excess demand = 8000 hamburgers/day

Return to Equilibrium  Markets have a tendency to eliminate excess supply and excess demand.  Surplus (unsold goods)  leads frustrated producers, who cannot sell all their production at the current price, to decrease the price  Shortage (not finding goods to buy)  leads frustrated consumers, who are willing to pay more than the current price, but who cannot get goods at the current price, to bid more – which increases the price

Using Algebra  To find equilibrium quantities and prices.  y=mx+b  P=mq+b m (–) negative for demand curve (+) positive for supply curve Do some examples. 1)Finding a price of quantity given the other (one equation) 2)Finding equilibrium prices and quantities. (setting both equations equal to each other.

Do Practice Questions!  Practice Questions.  …then an Assignment.