2. Individual Markets: Demand & Supply 3 C H A P T E R

3. MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS

4. $5 4 3 2 1 DEMAND DEFINED DEMAND SCHEDULE Various Amounts A Series of Possible Prices …a specified time period …other things being equal PQDQD 10 20 35 55 80

5. LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls An inverse relationship exists between price and quantity demanded

6. Diminishing Marginal Utility Income Effect Substitution Effect LAW OF DEMAND Demand Curve Individual and Market Demand

7. GRAPHING DEMAND P Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80

8. P Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND

9. P Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Increases? GRAPHING DEMAND

10. P Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 D’ Increase in Demand Increase in Quantity Demanded 10 20 35 55 80 30 40 60 80 + GRAPHING DEMAND

11. P Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Decreases? GRAPHING DEMAND

12. P Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 -- 10 20 40 60 D’ Decrease in Demand Decrease in Quantity Demanded GRAPHING DEMAND

13. DETERMINANTS OF DEMAND Tastes Number of Buyers Income – Normal (Superior) & Inferior Goods Prices of Related Goods – Substitutes & Complements – Unrelated Goods Expectations

14. SUPPLY DEFINED SUPPLY SCHEDULE $1 2 3 4 5 PQSQS CORN Various Amounts A Series of Possible Prices …a specified time period …other things being equal 5 20 35 50 60

15. LAW OF SUPPLY As Price Rises… …Quantity Supplied Rises As Price Falls… …Quantity Supplied Falls A direct relationship exists between price and quantity supplied

16. P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

17. S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN What if Supply Increases? GRAPHING SUPPLY

18. S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 Price of Corn Quantity of Corn $5 4 3 2 1 60 50 35 20 5 PQSQS CORN 80 70 60 45 30 S’ Increase in Supply Increase in Quantity Supplied GRAPHING SUPPLY

19. S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN What if Supply Decreases? GRAPHING SUPPLY

20. S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN S’ 45 30 20 0 -- Decrease in Supply Decrease in Quantity Supplied GRAPHING SUPPLY

21. DETERMINANTS OF SUPPLY Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers

22. DETERMINANTS OF SUPPLY Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers Combining with Demand

23. MARKET DEMAND & SUPPLY $5 4 3 2 1 10 20 35 55 80 $5 4 3 2 1 60 50 35 20 5 200 B U Y E R S PQDQD BUSHELS OF CORN MARKET DEMAND 2,000 4,000 7,000 11,000 16,000 200 S E L E R S 12,000 10,000 7,000 4,000 1,000 PQSQS BUSHELS OF CORN MARKET SUPPLY EQUILIBRIUM Graphically… xx

24. 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 PQDQD $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Market Clearing Equilibrium MARKET DEMAND & SUPPLY

25. 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 PQDQD $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Surplus At a $4 price more is being supplied than demanded MARKET DEMAND & SUPPLY

26. 11 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 PQDQD $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET At a $2 price more is being demanded than supplied Shortage MARKET DEMAND & SUPPLY

27. 11 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 PQDQD $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Shortage MARKET DEMAND & SUPPLY Surplus