1. 2 SUPPLY AND DEMAND I: HOW MARKETS WORK

2. Copyright © 2006 Thomson Learning 4 The Market Forces of Supply and Demand

3. Copyright © 2006 Thomson Learning Figure 1 Catherine’s Demand Schedule and Demand Curve Copyright © 2004 South-Western

4. Figure 3 Shifts in the Demand Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones Increase in demand Decrease in demand Demand curve,D 3 Demand curve,D 1 Demand curve,D 2 0

5. Table 1 Variables That Influence Buyers Copyright©2004 South-Western

6. Figure 5 Ben’s Supply Schedule and Supply Curve Copyright©2003 Southwestern/Thomson Learning

7. Figure 7 Shifts in the Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in supply Decrease in supply Supply curve,S 3 curve, Supply S 1 curve,S 2

8. Table 2 Variables That Influence Sellers Copyright©2004 South-Western

9. Figure 8 The Equilibrium of Supply and Demand Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0123456789101112 Quantity of Ice-Cream Cones 13 Equilibrium quantity Equilibrium price Equilibrium Supply Demand € 2.00

10. Figure 9 Markets Not in Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Supply Demand (a) Excess Supply Quantity demanded Quantity supplied Surplus Quantity of Ice-Cream Cones 4 € 2.50 10 2.00 7

11. Copyright © 2006 Thomson Learning Equilibrium Surplus When price > equilibrium price, then quantity supplied > quantity demanded. There is excess supply or a surplus. Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

12. Figure 10 How an Increase in Demand Affects the Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Supply Initial equilibrium D D 3....and a higher quantity sold. 2.... resulting in a higher price... 1. Hot weather increases the demand for ice cream... 2.00 7 New equilibrium € 2.50 10

13. Figure 11 How a Decrease in Supply Affects the Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Demand New equilibrium Initial equilibrium S1S1 S2S2 2.... resulting in a higher price of ice cream... 1. An increase in the price of sugar reduces the supply of ice cream... 3....and a lower quantity sold. 2.00 7 € 2.50 4

14. Table 4 What Happens to Price and Quantity When Supply or Demand Shifts? Copyright©2004 South-Western