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Chapter 3Chapter 3Chapter 3Chapter 3

Demand and SupplyDemand and Supply

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What is the Law of What is the Law of Demand?Demand?What is the Law of What is the Law of Demand?Demand?

When price increases the quantity demanded decreases

3

What is a What is a Demand Schedule?Demand Schedule?What is a What is a Demand Schedule?Demand Schedule?

Shows the specific quantity of a good or service that people are willing and able to buy at different prices

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Price Quantity Demanded

$10 0

$9 1

$8 2

$7 3

$6 4

$5 5

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What is a What is a Demand Curve?Demand Curve?What is a What is a Demand Curve?Demand Curve?

Graphically depicts the relationship between price and quantity demanded

Demand Curve

Demand Curve

P1

Q1

P2

Q2

Pri

ce

Quantity

Individual Demand Curves for FishIndividual Demand Curves for Fish

Price QuantityDemanded

10 09 18 27 36 45 54 63 72 81 9

Claudia’s Demand for Fish

7

0 1 2 3 4 5 6 7 8

9

1

2

345

6

8

10

9 10

Individual Demand Curves for FishIndividual Demand Curves for Fish

Price QuantityDemanded

10 19 38 57 76 95 114 133 152 171 19

Chris’s Demand for Fish

7

0 1 2 3 4 5 6 7 8

9

1

2

345

6

8

10

9 10

9

What is Market Demand?What is Market Demand?What is Market Demand?What is Market Demand?

The horizontal sum of all individual demands in a market

Market Demand Curve:Market Demand Curve:

Individual 1

P1

Q1

Individual 2

P1

Q2

Market Demand

P1

Q1+Q2

P2

11

Pri

ce

Quantity

7

0 1 2 3 4 5 6 7 8

9

1

2

345

6

8

0 1 2 3 4 5 6 7 8

9

1

2345

78

6

Market Demand CurveMarket Demand Curve

Claudia’s Demand Chris’s Demand

10 10

9 109 10

12

Pri

ce

Quantity

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Market Demand CurveMarket Demand Curve

10

9 10

Gottheil 2e Comprehensive (Exhibit 3.1), Micro (Exhibit 3.1), Macro (Exhibit 3.1)©2000 South-Western College Publishing

Individual Demand Curves for FishIndividual Demand Curves for Fish

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Gottheil 2e Comprehensive (Exhibit 3.2), Micro (Exhibit 3.2), Macro (Exhibit 3.2)©2000 South-Western College Publishing

The Market Demand CurveThe Market Demand Curve

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What is a What is a Supply Schedule?Supply Schedule?What is a What is a Supply Schedule?Supply Schedule?

Shows the specific quantity of a good or service that suppliers are willing and able to provide at different prices

Price Quantity Supplied

$5 0

$6 1

$7 2

$8 3

$9 4

$10 5

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What is a Supply Curve?What is a Supply Curve?What is a Supply Curve?What is a Supply Curve?

Depicts the relationship between price and quantity supplied

Supply Curve

Supply Curve

P1

Q1

P2

Q2

Pri

ce

Quantity

S

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What is What is Market-Day Supply?Market-Day Supply?What is What is Market-Day Supply?Market-Day Supply?

A market situation in which the quantity of a good supplied is fixed, regardless of price

Market-Day Supply Curve for FishMarket-Day Supply Curve for Fish

Price QuantitySupplied

10 60009 60008 60007 60006 60005 60004 60003 60002 60001 6000

Supply Schedule for Fish for the Market-Day

7

0 1 2 3 4 5 6 7 8

9

1

2

345

6

8

10

9 10Quantity (1,000)

Pri

ce

Sup

ply

Cur

veS

uppl

y C

urve

S

P1

Q

P2

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Market Demand Curve for FishMarket Demand Curve for Fish

Price QuantityDemanded

10 35009 40008 45007 50006 55005 60004 65003 70002 75001 8000

Demand Schedule & Curve for Fish:

7

0 1 2 3 4 5 6 7 8

9

1

2

345

6

8

10

9 10Quantity (1,000)

Pri

ce Excess Supply

Excess Demand

Equilibrium

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What isWhat is Equilibrium Price? Equilibrium Price?What isWhat is Equilibrium Price? Equilibrium Price?

The price that equates the quantity demanded and the quantity supplied

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Pri

ce

Quantity

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Market-Day, Short-Run and Long-Run SupplyMarket-Day, Short-Run and Long-Run Supply

10

9 10

Market-Day SupplyShort-Run Supply

Long-Run Supply

Short-Run:Short-Run:

The time interval during which suppliers are able to change the quantity of some but not all the resources they use to produce goods and services.

Long-Run:

The time interval during which suppliers are able to change the quantity of all the resources they use to produce goods and services.

D

SP3

Q3

P1 Surplus

P2Shortage

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Or Excess Supply

Or Excess Demand

Price QuantitySupplied

InitialQuantity

Demanded10 8500 35009 8000 40008 7500 45007 7000 50006 6500 55005 6000 60004 5500 65003 5000 70002 4500 75001 4000 8000

Fish Market with change in Demand:

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Pri

ce

Quantity

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Market Demand CurveMarket Demand Curve

10

9 10

S

D

Price QuantitySupplied

InitialQuantity

Demanded

Increase inQuantity

Demanded10 8500 3500 55009 8000 4000 60008 7500 4500 65007 7000 5000 70006 6500 5500 75005 6000 6000 80004 5500 6500 85003 5000 7000 90002 4500 7500 95001 4000 8000 10000

Fish Market with change in Demand:

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Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand:Increase in Demand:

10

9 10

S

DD'

Price QuantitySupplied

InitialQuantity

Demanded

Increase inQuantity

Demanded

Decrease inQuantity

Demanded10 8500 3500 5500 15009 8000 4000 6000 20008 7500 4500 6500 25007 7000 5000 7000 30006 6500 5500 7500 35005 6000 6000 8000 40004 5500 6500 8500 45003 5000 7000 9000 50002 4500 7500 9500 55001 4000 8000 10000 6000

Fish Market with change in Demand:

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Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Decrease in Demand:Decrease in Demand:

10

9 10

S

DD"

Change in Quantity Demanded:Change in Quantity Demanded:

A change in quantity demanded of a good that is caused solely by a change in the price of that good.

Change in Demand:

A change in quantity demanded of a good that is caused by factors other than the price of that good.

Factors that cause changes in Demand:

Changes in Income.

Changes in Taste.

Changes in the Prices of Other Goods.

Substitute Goods:

Goods that can replace each other. When the price of one increases (decreases), the demand for the other increases (decreases).

Complementary Goods:

Goods that are generally used together. When the price of one increases (decreases), the demand for the other decreases (increases)

Factors that cause changes in Demand:

Changes in Income.

Changes in Taste.

Changes in the Prices of Other Goods.

Changes in the expectations about future prices.

Changes in the population size.

Quantity

Pri

ce

0

P1

P2

Q1 Q2

Change in Quantity DemandedChange in Quantity Demanded

Quantity

Pri

ce

0

P1

Q1 Q2

Change in DemandChange in Demand

DD1

Price QuantityDemanded

InitialQuantitySupplied

Increase inQuantitySupplied

10 3500 8500 95009 4000 8000 90008 4500 7500 85007 5000 7000 80006 5500 6500 75005 6000 6000 70004 6500 5500 65003 7000 5000 60002 7500 4500 55001 8000 4000 5000

Fish Market with change in Supply:

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Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Supply:Increase in Supply:

10

9 10

S

D

S'

Factors that cause changes in Supply:

Changes in Technology.

Changes in Resource Price.

Changes in the Prices of Other Goods.

Changes in the Number of Suppliers.

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Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand & Supply:Increase in Demand & Supply:

10

9 10

S

D

S'

D'

43

Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand & Supply:Increase in Demand & Supply:

10

9 10

S

D

S'

D'

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Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand & Supply:Increase in Demand & Supply:

10

9 10

S

D

S'

D'

45

Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand & Decrease in Supply:Increase in Demand & Decrease in Supply:

10

9 10

S

D

S'

D'

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Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand & Decrease in Supply:Increase in Demand & Decrease in Supply:

10

9 10

S

D

S'

D'

47

Pri

ce

Quantity (1,000s)

0 1 2 3 4 5 6 7 8

9

1

2

34

5

6

7

8

Increase in Demand & Decrease in Supply:Increase in Demand & Decrease in Supply:

10

9 10

S

D

S'

D'