Chapter Two Supply and Demand

© 2007 Pearson Addison-Wesley. All rights reserved.2–2 Figure 2.1 A Demand Curve Demand curve for pork, D Q, Million kg of pork per year

© 2007 Pearson Addison-Wesley. All rights reserved.2–3 Figure 2.2 A Shift of A Demand Curve Effect of a 60¢ increase in the price of beef D 1 D Q, Million kg of pork per year

© 2007 Pearson Addison-Wesley. All rights reserved.2–4 Q s = 10 Q = 21.5 Q, Broadband access capacity in millions of Kbps Large firms’ demand Small firms’ demand Total demand Q l = ¢ Application (Page 20) Aggregating the Demand for Broadband Service

© 2007 Pearson Addison-Wesley. All rights reserved.2–5 Figure 2.3 A Supply Curve Supply curve, S Q, Million kg of pork per year

© 2007 Pearson Addison-Wesley. All rights reserved.2–6 Figure 2.4 A Shift of a Supply Curve Effect of a 25¢ increase in the price of hogs S 1 S Q, Million kg of pork per year

© 2007 Pearson Addison-Wesley. All rights reserved.2–7 Figure 2.5 Total Supply: The Sum of Domestic and Foreign Supply Q d * S d S f (ban) Q f * Q = Q d * Q * = Q d * + Q f * Q d, Tons per year Q f Q (a) Japanese Domestic Supply(b) Foreign Supply(c) Total Supply p * p * p * – S (ban) – S (no ban) S f p – p – p –

© 2007 Pearson Addison-Wesley. All rights reserved.2–8 Page 26 Solved Problem 2.2 S d Q, Tons per year (a) U.S. Domestic Supply(b) Foreign Supply(c) Total Supply p * p * p * p – p – p – S – S Q d – Q f – Q d, Tons per year Q f Q d * Q f * S f – S f Q d * + Q f * – Q d * + Q f –– Q d + Q f

© 2007 Pearson Addison-Wesley. All rights reserved.2–9 Figure 2.6 Market Equilibrium D S e Q, Million kg of pork per year Excess supply = 39 Excess demand = 39

© 2007 Pearson Addison-Wesley. All rights reserved.2–10 Figure 2.7 Effects of a Shift of the Demand Curve D 1 D 2 S 1 S 2 S Q, Million kg of pork per year Excess demand = 12 Q, Million kg of pork per year e 2 e 1 e 1 e 2 D (a) Effect of a 60¢ Increase in the Price of Beef(b) Effect of a 25¢ Increase in the Price of Hogs Excess demand = 15

© 2007 Pearson Addison-Wesley. All rights reserved.2–11 Page 33 Solved Problem 2.4 Q,Tons of beef per year p 2 p 1 S 1 D S 2 e 1 e 2 Q 2 Q 1 (a) Japanese Beef Market Q,Tons of beef per year p 1 p 2 = 0.85p 1 S 1 D 1 D 2 S 2 e 1 e 2 Q 1 Q 2 = 1.43Q 1 (b) U.S. Beef Market

© 2007 Pearson Addison-Wesley. All rights reserved.2–12 Figure 2.8 A Ban on Rice Imports Raises the Price in Japan Q 2 Q 1 S (no ban) D Q, Tons of rice per year p 2 e 2 e 1 p 1 S (ban) –

© 2007 Pearson Addison-Wesley. All rights reserved.2–13 Page 35 Solved Problem 2.5 Q 2 Q 3 D h (high) Q 1 S (no quota) Q, Tons of steel per year p 2 p 3 e 2 e 3 e 1 p 1 S (quota) – p – D l (low)

© 2007 Pearson Addison-Wesley. All rights reserved.2–14 Figure 2.9 Price Ceiling on Gasoline Q s Q 2 Q 1 = Q d Price ceiling S 1 D S 2 Q, Gallons of gasoline per month Excess demand p 2 e 2 e 1 p 1 = p –

© 2007 Pearson Addison-Wesley. All rights reserved.2–15 Figure 2.10 Minimum Wage L d L * L s Minimum wage, price floor S D L, Hours worked per year Unemployment e w * w —