MacroeconomicsCHAPTER 3

Supply and Demand<Review Slides>

PowerPoint® Slides by Can Erbil

© 2004 Worth Publishers, all rights reserved© 2004 Worth Publishers, all rights reserved

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Supply and Demand

Competitive market The supply and demand model

The demand curveThe supply curveFactors that cause the demand curve to shift, and factors that cause the supply curve to shiftThe equilibrium priceHow the equilibrium price changes when the supply and demand curves shift

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The Law of Demand

Higher price for a good, other things equal, leads people to demand a smaller quantity of the good.

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An Increase in Demand

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Movement Along the Demand Curve vs. Shift of the Demand Curve

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Shifts of the Demand CurveShifts of the Demand Curve

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What causes a demand curve to shift? Changes in the Prices of Related

Goods Substitutes Complements

Changes in Income Normal Goods Inferior Goods

Changes in Tastes Changes in Expectations

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The Supply Curve

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A Decrease in Supply

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Movement Along the Supply Curve vs. Shift of the Supply Curve

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Shifts of the Supply Curve

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What causes a supply curve to shift? Changes in Input Prices

An input is a good that is used to produce another good.

Changes in Technology

Changes in Income

Changes in Expectations

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Market Equilibrium

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Price Above Its Equilibrium Level Creates a Surplus

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Price Below Its Equilibrium Level Creates a Shortage

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Equilibrium and Shifts of the Demand Curve

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Equilibrium and Shifts of the Supply Curve

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Simultaneous Shifts of the Demand and Supply Curves

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Effects of the “War on Drugs”

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The End of Chapter 3

coming attraction:Chapter 4:

The Market Strikes Back