1. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 1 Managerial Economics in a Global Economy, 5th Edition by Dominick Salvatore Chapter 1: Appendix The Basics of Demand, Supply, and Equilibrium

2. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 2 Law of Demand A decrease in the price of a good, all other things held constant, will cause an increase in the quantity demanded of the good. An increase in the price of a good, all other things held constant, will cause a decrease in the quantity demanded of the good.

3. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 3 Change in Quantity Demanded Quantity Price P0P0 Q0Q0 P1P1 Q1Q1 An increase in price causes a decrease in quantity demanded.

4. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 4 Change in Quantity Demanded Quantity Price P0P0 Q0Q0 P1P1 Q1Q1 A decrease in price causes an increase in quantity demanded.

5. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 5 Changes in Demand Change in Buyers’ Tastes Change in Buyers’ Incomes –Normal Goods –Inferior Goods Change in the Number of Buyers Change in the Price of Related Goods –Substitute Goods –Complementary Goods

6. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 6 Change in Demand Quantity Price P0P0 Q0Q0 Q1Q1 An increase in demand refers to a rightward shift in the market demand curve.

7. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7 Change in Demand Quantity Price P0P0 Q1Q1 Q0Q0 A decrease in demand refers to a leftward shift in the market demand curve.

8. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 8 Law of Supply A decrease in the price of a good, all other things held constant, will cause a decrease in the quantity supplied of the good. An increase in the price of a good, all other things held constant, will cause an increase in the quantity supplied of the good.

9. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 9 Change in Quantity Supplied Quantity Price P1P1 Q1Q1 P0P0 Q0Q0 A decrease in price causes a decrease in quantity supplied.

10. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10 Change in Quantity Supplied Quantity Price P0P0 Q0Q0 P1P1 Q1Q1 An increase in price causes an increase in quantity supplied.

11. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 11 Changes in Supply Change in Production Technology Change in Input Prices Change in the Number of Sellers

12. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 12 Change in Supply Quantity Price P0P0 Q1Q1 Q0Q0 An increase in supply refers to a rightward shift in the market supply curve.

13. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 13 Change in Supply Quantity Price P0P0 Q1Q1 Q0Q0 A decrease in supply refers to a leftward shift in the market supply curve.

14. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 14 Market Equilibrium Market equilibrium is determined at the intersection of the market demand curve and the market supply curve. The equilibrium price causes quantity demanded to be equal to quantity supplied.

15. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 15 Market Equilibrium Quantity Price P Q D S

16. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 16 Market Equilibrium Quantity Price P0P0 Q0Q0 D0D0 S0S0 Q1Q1 P1P1 D1D1 An increase in demand will cause the market equilibrium price and quantity to increase.

17. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 17 Market Equilibrium Quantity Price P1P1 Q1Q1 S0S0 Q0Q0 P0P0 D0D0 D1D1 A decrease in demand will cause the market equilibrium price and quantity to decrease.

18. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 18 Market Equilibrium Quantity Price P0P0 Q0Q0 D0D0 S0S0 Q1Q1 P1P1 An increase in supply will cause the market equilibrium price to decrease and quantity to increase. S1S1

19. Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 19 Market Equilibrium Quantity Price P1P1 Q1Q1 D0D0 Q0Q0 P0P0 A decrease in supply will cause the market equilibrium price to increase and quantity to decrease. S1S1 S0S0