Econ 2301 Dr. Jacobson Mr. Stuckey Week 3 Class 3

Chapter 3 Supply and Demand

Supply and Demand Are the Forces That Make Economies Work. They Determine the Quantity of Each Good Produced and the Price At Which it is Sold.

The Terms Supply and Demand Refer to Behavior of People As They Interact With One Another in Competitive Markets.

What is a Market? A Market is a Group of Buyers and Sellers of a Particular Good or Service. A Market is a Group of Buyers and Sellers of a Particular Good or Service. The Buyers As a Group Determine the Demand For the Product, and the Sellers as a Group Determine the Supply of the Product. The Buyers As a Group Determine the Demand For the Product, and the Sellers as a Group Determine the Supply of the Product.

Markets Can Range From Very Competitive to Having Very Little Competition.

Economists Define a Competitive Market As a Market in Which There Are So Many Sellers That Each Has A Negligible Impact on the Market Price.

Perfectly Competitive Markets To Be Perfectly Competitive A Market Must Have: To Be Perfectly Competitive A Market Must Have: 1. The Goods Offered For Sale Are all Exactly the Same. 2. The Buyers and Sellers Are So Numerous that No Single Buyer or Seller Has Any Influence Over the Market Price. 2. The Buyers and Sellers Are So Numerous that No Single Buyer or Seller Has Any Influence Over the Market Price.

Demand

Demand The Quantity Demanded of Any Good is the Amount of the Good That Buyers Are Willing and Able to Purchase. The Quantity Demanded of Any Good is the Amount of the Good That Buyers Are Willing and Able to Purchase.

The schedule of quantities of a good or service that people are willing and able to buy at different prices The schedule of quantities of a good or service that people are willing and able to buy at different prices –Sometimes a schedule is also called a table Demand Copyright  2008 by The McGraw-Hill Companies, Inc. All rights reserved. 3-4

The Quantity Demanded in a Market is the Sum of the Quantities Demanded By All the Buyers At Each Price.

Law of Demand The Claim That, Other Things Being Equal, the Quantity Demanded of a Good Falls When the Price Rises.

The Quantity Demanded Falls As Price Rises and Rises As the Price Falls, Therefore, the Quantity Demanded is Negatively Related to the Price.

Demand Curve Price Quantity P Q

The Quantity Demanded in a Market is the Sum of the Quantities Demanded By All the Buyers At Each Price.

Shifts in the Demand Curve The Demand Curve Can Either Shift to the Right Indicating an Increase in Demand or to the Left Indicating a Decrease in Demand.

Causes of Shifts in the Demand Curve 1. A Change in Income. 2. A Change in Prices of Related (Complementary) Goods. 3. A Change in Tastes. 4. A Change in Consumer Expectations. 5. A Change in The Number of Buyers. 6. A Change in Price of Substitute Goods.

Supply

Demand Curve Price Quantity P Q Decrease in Demand Increase in Demand D1 D2 D3

Substitutes Two Goods for Which an Increase in The Price of One Leads to An Increase in Demand For the Other.

Complements Two Goods For Which an Increase in The Price of One Leads to a Decrease in the Demand For the Other.

Supply

Supply Is the “schedule” of quantities of a good or service that people are willing to sell at different prices Is the “schedule” of quantities of a good or service that people are willing to sell at different prices 3-18 Copyright  2008 by The McGraw-Hill Companies, Inc. All rights reserved.

The Supply Curve Is the Relationship Between Price and the Quantity Supplied.

Quantity Supplied The Amount of a Good That Sellers Are Willing and Able to Sell.

Law of Supply The Claim That, The Quantity Supplied of A Good Rises When The Price of the Good Rises.

Supply Schedule A Table That Shows the Relationship Between the Price of a Good and the Quantity Supplied.

Supply Curve A Graph of the Relationship Between The Price of a Good and The Quantity Supplied.

The Quantity Supplied Rises As the Price Rises and Falls as the Price Falls, Therefore, The Quantity Supplied is Positively Related to the Price of the Good.

Market Supply Vs. Individual Supply Market Supply is the Sum of The Supplies of All the Individual Sellers.

Supply Curve Price Quantity P Q

Supply Curve Price Quantity P Q Supply Curve S1 Supply Curve S2 Supply Curve S3 Increase in Supply Decrease in Supply

Causes For a Shift in Supply Input Price Input Price Technology Technology Expectations Expectations Number of Sellers Number of Sellers

Putting Supply and Demand Together

Equilibrium Is a Situation In Which the Market Price Has Reached The Level At Which Quantity Supplied Equals The Quantity Demanded

Equilibrium Price The Price That Balances Quantity Supplied and the Quantity Demanded.

At the Equilibrium Price, The Quantity of the Good The Buyers Are Willing and Able to Buy Exactly Balances The Quantity That Sellers Are Willing and Able to Sell.

Equilibrium Quantity The Quantity Supplied and The Quantity Demanded At the Equilibrium Price.

Equilibrium Price Quantity P Q $ Supply S1 Demand D1 Equilibrium Price Equilibrium Quantity

Shortage Is a Situation In which the Quantity Demanded is Greater Than the Quantity Supplied at a Given Price.

Equilibrium Price Quantity P Q $ Supply S1 Demand D1 Equilibrium Quantity Demanded Quantity Supplied Shortage

Surplus Is a Situation In Which Quantity Supplied is Greater Than Quantity Demanded at a given Price.

Equilibrium Price Quantity P Q $ Supply S1 Demand D1 Equilibrium Quantity Demanded Quantity Supplied Surplus

The Activities of the Many Buyers and Sellers of a Product Push the Market Price Toward the Equilibrium Price.

Equilibrium Price Quantity P Q $ Supply S1 Demand D1 S3 S2 Increase Decrease

Equilibrium Price Quantity P Q $ Supply S1 Demand D1 D2 D3 Decrease Increase

Definitions

Supply- Refers to the Position of the Supply Curve. Quantity Supplied- Refers to the Amount Suppliers Are Willing to Sell.

Therefore

A Shift in the Supply Curve is Called a “Change in Supply.” A Movement Along a Fixed Supply Curve is Called a “Change in The Quantity Supplied.”

Change In Supply Price Quantity P Q $ S1 S2 S3

Change In Quantity Supplied Price Quantity P Q $ S1 D1 D2 Change in Quantity Supplied

Questions ?