1. Supply and Demand
January 14, 2015

2. What Is Demand?
Demand is a relationship between a product’s price and quantity demanded.
The law of demand states that price and quantity demanded are inversely related.
Market demand is the sum of quantities demanded by all consumers in a market. 1

3. The Demand Curve P D Q

4. Changes in Demand Demand Determinants Prices of other products
The number of buyers (an increase causes a rightward demand shift)
Income
For normal products, an increase causes a rightward demand shift.
For inferior products, an increase causes a leftward demand shift.
Prices of other products
For substitute products, a rise in the other product’s price causes a rightward demand shift.
For complementary products, a rise in the other product’s price causes a leftward demand shift.
Consumer preferences
Consumer expectations
Changes in quantity demanded:
are shown by movements along demand curve
are caused by price changes
Market Demand Curve for Popcorn
0.50
1.00
1.50
2.00
2.50
Price ($ per kg) D2 D0 D1 1 3 5 7 9 11 13
Quantity Demanded
(millions of kg per year) . 3

5. Changes in Quantity Demanded
500
600
Quantity Demanded (cans of soda)
Change in Quantity Demanded
Price ($ per can of soda)
0.50
1.00
1.50
2.00
500
Change in Demand
Price ($ per pair of skis)
0.50
1.00
1.50
2.00 a b D0 D0 D1
Quantity Demanded (cans of soda) 3

6. What Is Supply?
Supply:
is a relationship between a product’s price and quantity supplied
The law of supply states there is a direct relationship between price and quantity supplied. 6

7. The Supply Curve P S Q

8. Supply Determinants P S Q
Supply determinants include the following factors:
Number of producers (an increase causes a rightward supply shift)
Resource prices (an increase causes a leftward supply shift)
State of technology (an improvement causes a rightward supply shift)
Prices of related products (an increase causes a leftward supply shift)
changes in nature (an improvement causes a rightward shift for some products)
producer expectations (an expectation of lower prices in the future causes an immediate rightward supply shift) P S Q 9

9. Changes in Quantity Supplied (a)
are shown by movements along the supply curve
are caused by price changes P S Q