2. 3 - 1 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Individual Markets Demand & Supply 3 C H A P T E R

3. 3 - 2 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS

4. 3 - 3 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show $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. 3 - 4 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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. 3 - 5 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Diminishing Marginal Utility LAW OF DEMAND

7. 3 - 6 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Diminishing Marginal Utility LAW OF DEMAND Income Effect

8. 3 - 7 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Diminishing Marginal Utility LAW OF DEMAND Income Effect Substitution Effect

9. 3 - 8 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Diminishing Marginal Utility Income Effect Substitution Effect LAW OF DEMAND Demand Curve Individual and Market Demand

10. 3 - 9 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show

11. 3 - 10 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show DETERMINANTS OF DEMAND Tastes and Preferences Number of Buyers Incomes – Normal (Superior) & Inferior Goods Prices of Related Goods – Substitutes & Complements – Unrelated Goods Expectations

12. Understanding Shifts of the Demand Curve Increase = right, Decrease = left M.E.R.I.T. shifts demand market size (number of consumers) expectations related prices (complements, substitutes) income (normal, inferior) tastes

13. 3 - 12 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

14. 3 - 13 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 55 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

15. 3 - 14 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 35 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

16. 3 - 15 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

17. 3 - 16 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

18. 3 - 17 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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 Connect the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND

19. 3 - 18 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

20. 3 - 19 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

21. 3 - 20 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

22. 3 - 21 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

23. 3 - 22 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show SUPPLY DEFINED SUPPLY SCHEDULE $1 2 3 4 5 PQSQS CORN Various Amounts 5 20 35 50 60

24. 3 - 23 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

25. 3 - 24 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show LAW OF SUPPLY As Price Rises… …Quantity Supplied Rises As Price Falls… …Quantity Supplied Falls A direct relationship exists between price and quantity supplied

26. 3 - 25 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show DETERMINANTS OF SUPPLY (CERTTS) Costs of Resources Price Expectations Regulations Technology Taxes & Subsidies Number of Sellers

27. 3 - 26 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 5 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

28. 3 - 27 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

29. 3 - 28 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 35 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

30. 3 - 29 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

31. 3 - 30 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

32. 3 - 31 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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 Plot the Points Connect the Points GRAPHING SUPPLY

33. 3 - 32 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

34. 3 - 33 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

35. 3 - 34 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

36. 3 - 35 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

37. 3 - 36 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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 Combining with Demand GRAPHING SUPPLY

38. 3 - 37 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show MARKET DEMAND & SUPPLY $5 4 3 2 1 10 20 35 55 80 $5 4 3 2 1 60 50 35 20 5 x 200 B U Y E R S PQDQD BUSHELS OF CORN MARKET DEMAND 2,000 4,000 7,000 11,000 16,000 x 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…

39. 3 - 38 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

40. 3 - 39 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

41. 3 - 40 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show 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

42. 3 - 41 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show MARKET EQUILIBRIUM Equilibrium Price & Quantity Rationing Function of Prices Changes in Demand Changes in Quantity Demanded Changes in Supply Changes in Quantity Supplied

43. 3 - 42 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show MARKET EQUILIBRIUM Equilibrium Price & Quantity Rationing Function of Prices Changes in Demand Changes in Quantity Demanded Changes in Supply Changes in Quantity Supplied Complex Cases Multiple Shifts

44. 3 - 43 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Equilibrium Price & Quantity Rationing Function of Prices Changes in Demand Changes in Quantity Demanded Changes in Supply Changes in Quantity Supplied Chapter Conclusion MARKET EQUILIBRIUM

45. Key Terms market demand demand schedule law of demand diminishing marginal utility income effect substitution effect demand curve determinants of demand normal goods inferior goods substitute good complementary good change in demand change in quantity demanded supply supply schedule law of supply supply curve determinants of supply change in supply change in quantity supplied surplus shortage equilibrium price equilibrium quantity rationing function of prices Copyright McGraw-Hill/Irwin, 2002 BACK END

46. 3 - 45 Copyright McGraw-Hill/Irwin, 2002 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium Surpluses Shortages Key Terms Previous Slide Next Slide End Show Next: Chapter 4