SUPPLY and DEMAND The basic model of market economics.

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Presentation transcript:

SUPPLY and DEMAND The basic model of market economics

Demand Schedule

Demand Curve $ $/unit Units/week 单位 / 周 0

Determinants of Demand Market price Consumer income Prices of related goods Tastes Expectations

Movements along the demand curve 0 D1D1 $/unit units/week A C $2.00 4

Shifts in the demand curve 0 D1D1 $/unit units/week D3D3 D2D2 Increase in demand Decrease in demand Q2Q1Q3 P

Tilts in the demand curve (change in slope) 0 D1D1 $/unit Units /week D2D2 Pa Pb QaQbQa Qb The flatter the demand curve, the greater the change in quantity for a change in price

Supply Schedule

Supply Curve $ $/unit units/wk 0

Determinants of Supply Market price Input prices Technology Expectations Number of producers

Movements along the supply curve 1 5 $/unit (units/wk) 0 S 1.00 A C $3.00

Shifts in the Supply Curve $/unit units/wk 0 S S2S2 Decrease in Supply S1S1 Increase in Supply

Tilts in the Supply Curve $/unit units/wk 0 S2S2 S1S1

Supply and Demand Together Demand Schedule (all buyers)Supply Schedule (all sellers) At $2.00, the quantity demanded is equal to the quantity supplied!

Supply Demand $/unit units/wk Market Equilibrium $ Equilibrium

$/unit (units/wk) $ P*= Supply Demand Surplus Market Not in Equilibrium: P > P *  Surplus (Excess Supply) Equilibrium Qd Qs

$/unit (units/wk) $ P*= Supply Demand Shortage Market Not in Equilibrium: P < P *  Shortage (Excess Demand) Equilibrium QdQs

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