Where Prices Come From: The Interaction of Demand and Supply

Where Prices Come From: The Interaction of Demand and Supply
Chapter 3 Where Prices Come From: The Interaction of Demand and Supply

Learning Objectives Understand the factors that influence the demand for goods and services. Understand the factors that influence the supply of goods and services. Explain how equilibrium in a market is reached and use a graph to illustrate equilibrium. Use demand and supply graphs to predict changes in prices and quantities.

How Hewlett-Packard manages the demand for printers
H-P’s success, like that of any firm, depends on its ability to manage changes in demand and supply. H-P has responded to changing market conditions so that printers, and not PCs, are now the firm’s most successful product.

The demand side of the market
LEARNING OBJECTIVE 1 The demand side of the market The demand of an individual buyer Quantity demanded: The amount of a good or service that a consumer is willing and able to buy at a given price.

Plotting a price-quantity combination on a graph: Figure 3.1
Price (dollars per printer) $125 At a price of $125 per printer, five people will be willing to buy a printer in the next month. 5 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 1 The demand side of the market Demand schedule: A table showing the relationship between the price of a product and the quantity of the product demanded. Demand curve: A curve that shows the relationship between the price of a product and the quantity of the product demanded.

Demand schedule and demand curve: Figure 3.2
Price ($ per printer) Quantity (printers per month) $175 3 At a price of $175, three printers will be purchased per month Price (dollars per printer) $175 As the price changes, the quantity of printers consumers are willing to buy changes. We can show this as a demand schedule in a table, or as a demand curve on a graph. The table and graph both show that as the price of printers falls the quantity demanded rises. When the price of a printer is $175, three consumers buy a printer. When the price of a printer drops to $150, four consumers buy a printer. Therefore, the demand curve is downward sloping. Demand 3 4 5 6 7 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (printers per month) $175 3 150 4 As the price falls, the quantity of printers demanded increases Price (dollars per printer) $175 $150 Demand 3 4 5 6 7 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (printers per month) $175 3 150 4 125 5 As the price falls, the quantity of printers demanded increases Price (dollars per printer) $175 $150 $125 Demand 3 4 5 6 7 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (printers per month) $175 3 150 4 125 5 100 6 As the price falls, the quantity of printers demanded increases Price (dollars per printer) $175 $150 $125 $100 Demand 3 4 5 6 7 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (printers per month) $175 3 150 4 125 5 100 6 75 7 As the price falls, the quantity of printers demanded increases Price (dollars per printer) $175 $150 $125 $100 $75 Demand 3 4 5 6 7 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 1 The demand side of the market Individual and market demand Market demand: The demand by all the consumers of a given good or service. The market demand curve is derived by horizontally summing all the individual demand curves for a good or service.

Deriving the market demand curve from individual curves: Figure 3.3
The table shows that the total quantity demanded in a market is the sum of the quantities demanded by each buyer at each price. We find the market demand curve by adding horizontally the individual demand curves in parts (a), (b) and (c). At a price of $100, Group A demands 6 printers, Group B demands 11 printers and Group C demands 9 printers. Therefore, part (d) shows that a price of $100 and a quantity demanded of 26 is a point on the market demand curve. Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Deriving the market demand curve from individual curves: Figure 3
Deriving the market demand curve from individual curves: Figure 3.3, continued Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 1 The demand side of the market The law of demand: Holding everything else constant, when the price of a product falls, the quantity demanded will increase, and when the price of a product rises, the quantity demanded will decrease.

LEARNING OBJECTIVE 1 The demand side of the market Holding everything else constant: the ceteris paribus condition. Ceteris paribus (‘all else being equal’): The requirement that when analysing the relationship between two variables, such as price and quantity demanded, other variables must be held constant.

LEARNING OBJECTIVE 1 The demand side of the market What explains the law of demand? The substitution effect: The change in the quantity demanded of a good or service that results from a change in price, making the good or service more or less expensive relative to other goods and services that are substitutes, (holding constant the effect of the price change on consumer purchasing power).

LEARNING OBJECTIVE 1 The demand side of the market What explains the law of demand? The income effect: The change in the quantity demanded of a good or service that results from the effect of a change in price on consumer purchasing power, (holding all other factors constant).

LEARNING OBJECTIVE 1 The demand side of the market Variables that shift market demand The five most important variables are: Prices of related goods. Income Tastes Population and demographics Expected future prices

An increase in demand: Figure 3.4a
Price P When consumers increase the quantity of a product they wish to buy at a given price, the market demand curve shifts to the right from D1 to D2. Demand 1 Q1 Q2 Quantity Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

A decrease in demand: Figure 3.4b
Price P When consumers decrease the quantity of a product they wish to buy at any given price, the demand curve shifts to the left from D1 to D3. Demand 1 Demand 3 Q3 Q1 Quantity Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 1 The demand side of the market Prices of related goods – Substitutes: Goods or services that can be used in place of other goods or services. Complements: Goods and services that are consumed together.

LEARNING OBJECTIVE 1 The demand side of the market Income – Normal good: A good for which the demand increases as income rises and decreases as income falls. Inferior good: A good for which the demand increases as income falls and decreases as income rises.

LEARNING OBJECTIVE 1 The demand side of the market Tastes – A broad category that refers to the many subjective elements that can influence a consumer’s plans to buy a good or service. Seasons Trends/fashion

LEARNING OBJECTIVE 1 The demand side of the market Population and demographics - Population: As population increases the demand for most goods and services will increase. Demographics: Changes in the characteristics of the population (age, race and gender) will influence demand for various goods and services.

LEARNING OBJECTIVE 1 The demand side of the market Expected future prices - Consumers choose when to buy goods and services based on their expectations regarding future prices relative to present prices. If consumers expect prices to increase in the future, they have an incentive to increase purchases now, and vice versa.

Petrol prices don’t just affect the demand for petrol
High petrol prices reduced the demand for 4WDs.

Table 3.1: Variables that shift the market demand curve
Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 1 The demand side of the market A change in demand versus a change in quantity demanded A change in demand refers to a shift in the demand curve. Occurs due to a change in variables, other than the product’s own price, that affect demand. A change in the quantity demanded refers to a movement along the demand curve as a result of a change in the product’s price.

A change in demand versus a change in the quantity demanded: Figure 3
A shift in the demand curve is a change in demand Price (dollars per printer) A C $175 B $150 A movement along the demand curve is a change in quantity demanded D2 If the price of printers falls from $175 to $150, the result will be a movement along the demand curve from point A to point B – an increase in quantity demanded from 50,000 to 60,000. If consumers’ income increases, or another factor changes that makes consumers want more of the product at every price, the demand curve will shift to the right – an increase in demand. In this case, the increase in demand from D1 to D2 causes the quantity of printers demanded at a price of $175 to increase from 50,000 at point A to 70,000 at point C. Demand, D1 50 000 60 000 70 000 Quantity (printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Changes in quantity demanded versus changes in demand
LEARNING OBJECTIVE 1 Changes in quantity demanded versus changes in demand Explain whether each of the following causes a movement along or a shift in the demand curve for Dell laptops. Indicate the direction of the shift in demand or the movement along the curve and the reason for the change. a) The price of Toshiba laptops decreases. b) A fall in the value of the Australian dollar against the US dollar increases the price of Dell laptops in Australia. c) Dell’s customised laptops become increasingly appealing. Note: while these questions seem relatively easy, many students fail to recognize the difference between a change in demand – a change in a determinant of demand which shifts the entire curve – and a change in quantity demanded – a change in price which causes a movement along the curve.

LEARNING OBJECTIVE 1 Changes in quantity demanded versus changes in demand Solving the problem: STEP 1: Review the material. The problem addresses the difference between changes in demand and changes in quantity demanded, and the determinants of both. This material is covered on pages 65 – 70 of the text. STEP 2: Answer (a): Toshiba laptops are a substitute for Dell laptops. A decrease in the price of Toshiba laptops will decrease demand for Dell laptops, shifting the demand curve for Dell laptops to the left.

LEARNING OBJECTIVE 1 Changes in quantity demanded versus changes in demand Solving the problem: STEP 3: Answer (b): The reason for the change in price is not significant (at this stage). The important issue is that the price of Dell laptops has increased. As a result, quantity demanded will decrease, resulting in a movement up the demand curve.

LEARNING OBJECTIVE 1 Changes in quantity demanded versus changes in demand Solving the problem: STEP 4: Answer (c): This change is an example of a change in consumer tastes. The result will be an increase in demand for Dell laptops, which will shift the demand curve to the right.

The supply side of the market
LEARNING OBJECTIVE 2 The supply side of the market Individual supply Quantity supplied: the amount of a good or service that a firm is willing and able to supply at a given price.

LEARNING OBJECTIVE 2 The supply side of the market Supply schedule: a table showing the relationship between the price of a product and the quantity of the product supplied. Supply curve: a curve that shows the relationship between the price of a product and the quantity of the product supplied.

Supply schedule and supply curve: Figure 3.6
Price ($ per printer) Quantity (millions of printers per month) $175 10 Supply schedule and supply curve: Figure 3.6 At a price of $175, 10 million printers would be supplied per month Price (dollars per printer) Supply $175 As the price changes, H-P changes the quantity of printers it is willing to supply. We can show this as a supply schedule in a table, or as a supply curve on a graph. The supply schedule and supply curve both show that, as the price of printers rises, HP will increase the quantity it supplies. At a price of $150 per printer H-P will supply 9.5 million printers. At a price of $175 it will supply 10 million. 8 8.5 9 9.5 10 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (millions of printers per month) $175 10 150 9.5 Supply schedule and supply curve: Figure 3.6 As the price falls, the quantity of printers supplied decreases Price (dollars per printer) Supply $175 $150 8 8.5 9 9.5 10 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (millions of printers per month) $175 10 150 9.5 125 9 Supply schedule and supply curve: Figure 3.6 As the price falls, the quantity of printers supplied decreases Price (dollars per printer) Supply $175 $150 $125 8 8.5 9 9.5 10 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (millions of printers per month) $175 10 150 9.5 125 9 100 8.5 Supply schedule and supply curve: Figure 3.6 As the price falls, the quantity of printers supplied decreases Price (dollars per printer) Supply $175 $150 $125 $100 8 8.5 9 9.5 10 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Price ($ per printer) Quantity (millions of printers per month) $175 10 150 9.5 125 9 100 8.5 75 8 Supply schedule and supply curve: Figure 3.6 As the price falls, the quantity of printers supplied decreases Price (dollars per printer) Supply $175 $150 $125 $100 $75 8 8.5 9 9.5 10 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 2 The supply side of the market Individual and market supply Market supply: The supply by all the firms of a given good or service. The market supply curve is derived by horizontally summing all the individual supply curves for a good or service.

Deriving the market supply curve from individual curves: Figure 3.7
The table shows that the total quantity supplied in a market is the sum of the quantities supplied by each seller. We can find the market supply curve by adding horizontally the individual supply curves. For example, at a price of $125, Epson supplies five million printers, Lexmark supplies 7.5 million printers and H-P supplies nine million printers. Therefore, the quantity supplied in the market at a price of $125 is 21.5 million printers. Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Deriving the market supply curve from individual curves: Figure 3
Deriving the market supply curve from individual curves: Figure 3.7, continued Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 2 The supply side of the market The law of supply: Holding everything else constant, increases in the price of a product cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

LEARNING OBJECTIVE 2 The supply side of the market Variables that shift supply The five most important variables are: Prices of inputs Technological change Prices of substitutes in production Expected future prices Number of firms in the market

A decrease in supply: Figure 3.8a
Price Supply2 Supply1 P Decrease When firms decrease the quantity of a product they wish to sell at a given price, the supply curve shifts to the left. The shift from S1 to S2 represents a decrease in supply. Q2 Q1 Quantity Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia 48

An increase in supply: Figure 3.8b
Price Supply1 Supply3 P Increase When firms increase the quantity of a product they wish to sell at a given price, the supply shifts to the right. The shift from S1 to S3 represents an increase in supply. Q1 Q3 Quantity Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia 49

LEARNING OBJECTIVE 2 The supply side of the market Prices of inputs An input is anything used in the production of a good or service. An increase in the cost of an input increases the cost of production. The firm supplies less. A decrease in the cost of an input decreases the cost of production at every price. The firm supplies more at every price.

LEARNING OBJECTIVE 2 The supply side of the market Technological change A change in the ability of a firm to produce a given level of output with a given quantity of inputs. Positive technological change allows the firm to produce more outputs with the same amount of inputs. Negative technological change is rare.

LEARNING OBJECTIVE 2 The supply side of the market Prices of substitutes in production Alternative products a firm can produce with the same resources are substitutes in production. An increase in the price of a substitute in production decreases the supply of the initial good, while a decrease in the price of a substitute in production increases the supply of the initial good.

LEARNING OBJECTIVE 2 The supply side of the market Expected future prices If firms expect the price of its product will increase in the future they have an incentive to decrease supply now. Number of firms in the market When new firms enter the market supply increases. When firms exit the market, supply decreases.

A change in supply versus a change in the quantity supplied: Figure 3
Price (dollars per printer) A movement along the supply curve is a change in quantity supplied Supply, S1 S2 A shift in the supply curve is a change in supply $150 B C $125 A If the price of printers rises from $125 to $150 the result will be a movement up the supply curve from point a to point B – an increase in quantity supplied from 21.5 million to 23.5 million. If the price of an input decreases or another factor changes that makes sellers supply more of the product at every price, the supply curve will shift to the right – an increase in supply. In this case, the increase in supply from S1 to S2 causes the quantity of printers supplied at a price of $150 to increase from 23.5 million at point B to 27.0 million at point C. 21.5 23.5 27.0 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 3 Market equilibrium Market equilibrium: A situation in which quantity demanded equals quantity supplied. Competitive market equilibrium: A market equilibrium with many buyers and many sellers.

Market equilibrium: Figure 3.10
Price (dollars per printer) Supply Market equilibrium $100 Equilibrium price Where the demand curve crosses the supply curve determines market equilibrium. In this case, the demand curve for printers crosses the supply curve at a price of $100 and a quantity of 19.5 million. Only at this point is the quantity of printers consumers are willing to buy equal to the quantity of printers firms are willing to sell: the quantity demanded is equal to the quantity supplied. Equilibrium quantity Demand 19.5 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

LEARNING OBJECTIVE 3 Market equilibrium Surplus: A situation in which the quantity supplied is greater than the quantity demanded. Shortage: A situation in which the quantity demanded is greater than the quantity supplied.

The effect of surpluses and shortages on the market price: Figure 3.11
Surplus of 3 million printers resulting from price above equilibrium Price (dollars per printer) Supply $125 $100 Shortage of 3 million printers resulting from price below equilibrium $75 When the market price is above equilibrium there will be a surplus In the figure, a price of $125 for printers results in 21.5 million being supplied, but only 18.5 million being demanded, or a surplus of three million. As firms cut the price to dispose of the surplus, the price will fall to the equilibrium of $100. When the market price is below equilibrium there will be a shortage. A price of $75 results in 20.5 million printers being demanded, but only 17.5 million being supplied, or a shortage of three million. As consumers who are unable to buy a printer are willing to pay higher prices, the price will rise to the equilibrium of $100. Demand 17.5 18.5 19.5 20.5 21.5 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

The effect of a decrease in supply on equilibrium: Figure 3.12
Price (dollars per printer) Supply2 Supply1 1. As Xerox exits the market for printers, the supply curve shifts to the left … P2 P1 If a firm exits a market, as Xerox did from the market for home printers, the equilibrium price will rise and the equilibrium quantity will fall. As Xerox exits the market for printers, a smaller quantity of printers will be supplied at every price, so the market supply curve shifts to the left from S1, to S2, which causes a shortage of printers at the original price P1. The equilibrium price rises from P1 to P2. The equilibrium quantity falls from Q1 to Q2. 3. …and decreasing the equilibrium quantity 2. …increasing the equilibrium price… Demand Q2 Q1 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

The effect of an increase in demand on equilibrium: Figure 3.13
Price (dollars per printer) 1. As population and income grow, the demand curve shifts to the right … Supply P2 3. …and also increasing the equilibrium quantity P1 Increases in income and population will cause the equilibrium price and quantity to rise. As population and income grow the quantity demanded increases at every price, and the market demand curve shifts to the right from D1 to D2, which causes a shortage of printers at the original price, P1. The equilibrium price rises from P1 to P2. The equilibrium quantity rises from Q1 to Q2. 2. …increasing the equilibrium price… Demand2 Demand1 Q1 Q2 Quantity (millions of printers per month) Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Figure 3.14: Shifts in demand and supply over time
Whether the price of a product rises or falls over time depends on whether or not demand shifts to the right more than supply. In panel (a), demand shifts to the right more than supply and equilibrium price rises. Demand shifts to the right more than supply. Equilibrium price rises from P1 to P2. In panel (b), supply shifts to the right more than demand and the equilibrium price falls. Supply shifts to the right more than demand. Equilibrium price falls from P1 to P2. Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

Figure 3.15: The demand for chicken has increased more than the supply
The supply of chicken increased rapidly during the 1990s, but the demand increased even faster. The result was that the equilibrium price of chicken rose. (The prices have been adjusted for the effects of inflation.) Between 1991 and 2000 the demand for chicken shifted to the right more than did the supply. The equilibrium price of chicken rose from $6 per kilo in 1991 to $8 per kilo in 2000. Hubbard, Garnett, Lewis and O’Brien: Essentials of Economics © 2010 Pearson Australia

The falling price of large flat-screen televisions
Corning’s breakthrough spurred the manufacture of LCD televisions in Taiwan, South Korea and Japan, and an eventual decline in price.

Demand and supply both count: the market for flat-screen televisions.
LEARNING OBJECTIVE 4 Demand and supply both count: the market for flat-screen televisions. Demand for flat-screen televisions has increased significantly over recent years, however, the price of these televisions has decreased. Clearly this is an example of an exception to the “law of demand”. Do you agree?

Demand and supply both count: the market for flat-screen televisions.
LEARNING OBJECTIVE 4 Demand and supply both count: the market for flat-screen televisions. Solving the problem: STEP 1: Review the material. The problem examines simultaneous shifts in the demand and supply curves and the resulting impact on equilibrium price. This material is covered on pages of the text.

LEARNING OBJECTIVE 4 Changes in quantity demanded versus changes in demand Solving the problem: STEP 2: To answer this question we need to look at changes in both demand and supply. If we begin from the demand side, it is clear that demand for flat-screen televisions has increased. This would cause a rightward shift of the demand curve, and, all else held constant, the equilibrium price would increase.

LEARNING OBJECTIVE 4 Changes in quantity demanded versus changes in demand Solving the problem: STEP 3: In the real world, it is common for more than one variable to change at the same time. In the case of flat-screen televisions, production technology has improved, decreasing the cost of production and causing the supply curve to shift to the right. In addition, there are many more producers in the industry, for example, from Japan, South Korea and China, which further increases supply. A rightward shift in supply alone would lead to a decrease in equilibrium price.

LEARNING OBJECTIVE 4 Changes in quantity demanded versus changes in demand Solving the problem: STEP 4: If we compare the shifts in demand and supply, we can see that a right shift in demand increases price and a right shift in supply decreases price. In this case, both shifts have occurred simultaneously, but the shift in supply has been of a greater magnitude than the shift in demand. As a consequence, the supply effect has dominated the outcome, resulting in a decrease in the equilibrium price for flat-screen televisions.

LEARNING OBJECTIVE 4 Changes in quantity demanded versus changes in demand Solving the problem: STEP 5: Our result is not an example of an exception to the ‘law of demand’. The ‘law of demand’ relates to the inverse relationship between the price of a good and the quantity of the good demanded. The case of ‘flat screen televisions’ is an example of changes in tastes leading to an increase in demand and, simultaneously, an increase in the number of suppliers and improvements in production technology increasing supply.

An Inside Look Figure 1: The fall in the price of PCs causes the demand for printers to shift to the right

An Inside Look Figure 2: A fall in the cost of PCs shifts the supply curve for PCs to the right

Key Terms Ceteris paribus (all else being constant)
Competitive market equilibrium Complements Demand curve Demand schedule Demographics Income effect Inferior good Law of demand Law of supply Market demand Market equilibrium Normal good Quantity demanded Quantity supplied Shortage Substitutes Substitution effect Supply curve Supply schedule Surplus Technological change

Get Thinking! Agricultural products are typically sold in international markets where their prices frequently fluctuate in response to changes in demand and supply. The Australian Broadcasting Commission’s regular Sunday program Landline allows viewers to see many examples of changing agricultural markets. Go to the program’s website at and search the Program Archives for an overview of changes in demand and supply conditions for agricultural products of interest to you. Some examples are: the wine industry, beef, wheat, water, and even the fertiliser industry in Australia’s Pacific neighbour Nauru.

Check Your Knowledge Q1. Which of the following establishes the inverse relationship between the price of a product and the quantity of the product demanded? a. The substitution effect. b. The income effect. c. The law of demand. d. The price effect.

Check Your Knowledge Q2. When analysing the relationship between the price of a good and quantity demanded, other variables must be held constant. Which term best describes such an assumption? The substitution effect. The income effect. The law of demand The term ceteris paribus.

Check Your Knowledge Q3. When two goods, X and Y, are complements, which of the following occurs? An increase in the price of good X leads to an increase in the price of good Y. An increase in the price of good X leads to decrease in the quantity demanded of good Y. An increase in the price of good X leads to a decrease in demand for good Y. An increase in the price of good X leads to an increase in demand for good Y.

Check Your Knowledge Q4. Which of the following is correct?
a. Individual supply curves can be derived from a market supply curve. b. To derive a market supply curve, we add the prices that producers must obtain in order to produce a given quantity of output. c. To derive a market supply curve, we add individual supply curves. d. All of the above procedures are correct.

Check Your Knowledge Q4. Which of the following is correct?
a. Individual supply curves can be derived from a market supply curve. b. To derive a market supply curve, we add the prices that producers must obtain in order to produce a given quantity of output. c. To derive a market supply curve, we add individual supply curves. d. All of the above are correct.

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