1. CASE STUDY Two ways to reduce the quantity of smoking demanded:
-- Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on TV (shift demand curve)
-- Raising the price of cigarettes through tobacco taxes (move along demand curve)

2. SUMMARY variable change Demand Shift Income (Normal) Rise (fall)
Right (left)
Income (Inferior)
Fall (rise)
Left (right)
Price of substitute
Price of complement
Taste
Expected Price
Number of buyers

3. SUPPLY
Quantity supplied is the amount of a good that sellers are willing and able to sell.
Law of Supply
The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises.

4. SUPPLY SCHEDULE Supply Schedule
The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.

5. EXAMPLE OF SUPPLY SCHEDULE

6. SUPPLY CURVE Supply Curve
The supply curve is the graph of the relationship between the price of a good and the quantity supplied.

7. increases quantity of cones supplied.
Price of
Ice-Cream
Cone
$3.00
2.50
1. An
increase
in price
...
2.00
1.50
1.00
0.50 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream Cones 2.
...
increases quantity of cones supplied.
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8. TWO VIEWS For every possible price, it shows the production rate
For each unit of item, it shows the minimum price that the seller is willing to accept

9. MARKET SUPPLY
Market supply refers to the sum of all individual supplies for all sellers of a particular good or service.
Graphically, individual supply curves are summed horizontally to obtain the market supply curve.

10. CHANGE IN QUANTITY SUPPLIED
Movement along the supply curve.
Caused by a change in price.

11. CHANGE IN QUANTITY SUPPLIED
Price of Ice-Cream Cone S C
$3.00
A rise in the price of ice cream cones results in a movement along the supply curve. A
1.00
Quantity of Ice-Cream Cones 1 5 30 11

12. CHANGE IN SUPPLY Change in Supply
A shift in the supply curve, either to the left or right.
Caused by a change in a determinant other than price.

13. FIGURE 7 SHIFTS IN THE SUPPLY CURVE
Price of
Supply curve, S 3
Ice-Cream
curve,
Supply S 1
Cone
Supply
curve, S 2
Decrease
in supply
Increase
in supply
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning

14. SHIFT IN THE SUPPLY CURVE
Input prices
Technology
Expectations
Number of sellers

15. SUMMARY variable change Supply Shift Input (factor) price Rise (fall)
Fall (rise)
Left (right)
Technology
Right (left)
Expected Price
Number of sellers

16. EQUILIBRIUM
Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded.

17. EQUILIBRIUM PRICE AND QUANTITY
The price that balances quantity supplied and quantity demanded.
On a graph, it is the price at which the supply and demand curves intersect.
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price.
On a graph it is the quantity at which the supply and demand curves intersect.

18. Quantity of Ice-Cream Cones
Price of
Ice-Cream
Cone
Supply
Demand
Equilibrium
Equilibrium price
$2.00
Equilibrium
quantity 1 2 3 4 5 6 7 8 9 10 11 12 13
Quantity of Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning

19. SURPLUS AND SHORTAGE Surplus Shortage
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.
Shortage
When price < equilibrium price, then quantity demanded > the quantity supplied.
There is excess demand or a shortage.
Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

20. ALTERNATIVE EXAMPLE: #2 LEAD PENCILS
Price
Quantity demanded
Quantity supplied
0.05
1000
400
0.10
800
500
0.15
600
0.20
700
0.25
200

21. QUICK QUIZ 1 Draw demand and supply curves
Find equilibrium price and quantity

22. QUICK QUIZ 2
How would following events shift either the demand or the supply of #2 lead pencil?
-- an increase in the use of standardized exams (using opscan forms)
-- a decrease in the price of ink pens
-- a start of a school year

23. INCREASE IN DEMAND Price of Ice-Cream 1. Hot weather increases
the demand for ice cream . . .
Cone D D
Supply
New equilibrium
$2.50 10
resulting
in a higher
price . . .
2.00 7
Initial
equilibrium
Quantity of 3.
. . .
and a higher
quantity sold.
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning

24. DECREASE IN SUPPLY Price of 1. An increase in the
price of sugar reduces
the supply of ice cream. . .
Ice-Cream
Cone S2 S1
Demand
New
equilibrium
$2.50 4
resulting
in a higher
price of ice
cream . . .
Initial equilibrium
2.00 7
Quantity of 3.
. . .
and a lower
quantity sold.
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning

25. SUMMARY

26. DISCUSSION
Each of the events listed below has an impact on the market for bicycles.
1.An increase in the price of automobile.
2.A decrease in incomes of consumers if bicycles are a normal good.

27. DISCUSSION-CONTINUED
3.An increase in the price of steel used to make bicycle frames. 4.An environmental movement shifts tastes toward bicycling.

28. DISCUSSION-CONTINUED
5.Consumers expect the price of bicycles to fall in the future. 6.A technological advance in the manufacture of bicycles.

29. DISCUSSION-CONTINUED
7.A reduction in the price of bicycle helmets and shoes.
8.A decrease in incomes of consumers if bicycles are an inferior good.