1. Chapter 3- Individual Markets
Objective – Students will be able to answer questions regarding supply and demand.
SECTION 1
© 2001 by Prentice Hall, Inc.

2. Equilibrium When supply = demand, there is equilibrium in the market
Equilibrium creates a single price and quantity for a good/service

3. Market Equilibrium P S p D Q q

4. Shortage and Surplus
If the market price is above equilibrium, the quantity supplied exceeds quantity demanded (surplus), and the price automatically is pushed down to equilibrium.
If the market price is below equilibrium, the quantity demanded exceeds quantity supplied (shortage), and the price automatically is pushed up towards equilibrium.

5. There are four steps in figuring out supply
and demand graphs:
1. DON’T OVERTHINK!
2. Which curve is affected and why?
3. Is it an increase or a decrease?
4. JUST DRAW IT!

6. What happens to the market for oranges when
there is a frost that hits Florida? S1 P S
Decrease in
the physical
availability
of resources. P1 P D Q1 Q Q
Your market is:
Oranges

7. Decrease in the price of a complement. Your market is:
What happens to the market for downloaded music
when the price of an MP3 player or Ipod goes down? P S
Decrease in
the price of
a complement. P1 P D1 D Q Q1 Q
Your market is:
Downloaded Music

8. What happens to the market for downloaded
music when the royalties paid to the song
artist goes up? S1 P S
Increase in
costs. P1 P D Q1 Q Q
Your market is:
Downloaded Music

9. The U.S. goes through a boom economy, what
happens to the market for steak? P S
Increase in
incomes—
Normal goods. P1 P D1 D Q Q1 Q
Your market is:
Steak

10. The price of milk doubles; what happens to
the market for cereal?

11. Shifts in both
Supply and Demand
What happens to Price
and what happens to
Quantity?

12. Section 1 Assessment
Graph what happens to the market for Nike shoes after a major advertising campaign.
2. Graph what happens to the market for computers if Hewlett Packard decides to stop producing them.

13. Summary: In a paragraph, describe what you have learned today.