Lecture CH 3 Eft Market Demand & Supply

Chapter 3
Market Demand and Supply
Lecture Slides
Economics for Todays World
Irvin B. Tucker
2011 South-Western, a part of Cengage Learning
Why is this chapter

important?
It introduces
basic supply and
demand analysis
2
What is demand?
Demand
represents the
choice making
behavior of
buyers
3
What does ceteris

paribus mean?
All else remains
the same
4
What is the
law of demand?
There is an inverse
relationship between the
price of a good and the
quantity buyers are
willing to purchase in a
defined time period,
ceteris paribus
5
Consumer Sovereignty
Is the freedom of the
consumers to make their own
choices about which goods
and services to buy.
If consumers prevail, these
choices are made without
coercion on the part of
business or government.
6
What is the law of

diminishing marginal utility?
Explain why consumers

will buy more of a good
only if its price
decreases, ceteris
paribus.
7
What is a
demand curve?
A curve that shows the
quantities of a good or
service that people are
willing and able to buy at
different prices
8
Exhibit 1 An Individual Demand Curve for DVDs

An Individual Buyer`s Demand Schedule for DVDs
Point
Price per
DVD
Quantity Demanded
(per year)
$20
15
10
10
16
9
Exhibit 1 Individuals Demand Curve for DVDs
Price per DVD (dollars)
20
15
10
D
5
0
Demand
Curve
12
Quantity of DVDs
(per year)
16
20
1
0
Why do demand curves

have a negative slope?
As the price per unit of a
good or service falls,
buyers can afford to buy
more units per period of
time.
11
What is
market demand?
The summation of
the individual
demand schedules
in a market
12
Exhibit 2 The Market Demand Curve for DVDs

Freds Demand Curve
Price
Marys Demand Curve
Price
$20
$20
D1
D2
5
0 2
Market Demand Curve
Price
$20
DTOTAL
5
01
Quantity
Quantity
Quantity
( per year)
(per year)
(per year)
12
13
Important !
KNOW THE DIFFERENCE
BETWEEN A CHANGE IN
THE QUANTITY
DEMANDED AND A
CHANGE IN DEMAND
14
When price changes,

what happens?
The curve does not shift
and there is a change
in the quantity
demanded
15
Increase in quantity
demanded
Downward movement
along the demand curve
Price
decreases
Decrease in
quantity demanded
Upward movement along

the demand curve
Price
Increases
16
Exhibit 3(a) A change in price causes a change in
the quantity demanded
(dollars)
Price per DVD
20
15
10
10
20
30
40
50
Quantity of DVDs
(millions per year)
17
Non-price determinants
1. the number of buyers
2. taste and preferences
3. income
4. expectations
5. prices of related goods
18
When a variable other

than price changes,
what happens?
The whole demand
curve shifts, stated
as there is a
change in demand
19
Decrease or
increase in
demand
Leftward or rightward shift

in the demand curve
Change in a
nonprice
determinant
20
Exhibit 3(b) When the ceteris paribus assumption is

relaxed, the whole curve can shift
20
Price per DVD
(dollars)
15
10
D2
5
0
2011 South-Western, a
part of Cengage Learning
D1
10
20
30
Quantity of DVDs
(millions per year)
40
50
21
What is the
conclusion?
Changes in nonprice
determinants can
produce only a shift in
a demand curve and
not a movement along
the demand curve
22
Exhibit 4 Terminology for changes in price and

nonprice determinants of demand
Price Incease
23
20
Exhibit 4 Two types of Demand Changes Illustrated
Price
per unit
Change in
Nonprice
Determinant
Causes
Change in
Nonprice
Determinant
Causes
D3
D1
D2
24
Quantity of good or service per unit of time
What is a normal good?

Any good for which
there is a direct
relationship between
changes in income and
its demand curve.
Example: new cars,
airline travel, jewelleries
25
What does a direct

relationship
between price and
quantity mean?
The two variables

move in the same
direction
26
What is an
inferior good?
Any good for which
there is an inverse
changes in income and
its demand curve.
Example: increased
income reduces
purchase of second
hand car.
27
What does an inverse

price & quantity mean?
It means that the two
variables move in
opposite directions
28
What are
substitute goods?
Goods that
compete with
one another for
consumer
purchases
29
What happens when

the price increases for
a good that has a
substitute?
The demand curve

for the substitute
good increases
30
What happens when

the price decreases for
a good that has a
substitute?
The demand curve for
the substitute good
decreases
31
What are
complementary goods?
Goods that are
jointly consumed
with another good
32
What happens when

the price increases for
a good that has a
complement?
The demand curve for
the substitute good
decreases
33
What happens when

the price decreases
for a good that has a
complement?
The demand curve
for the substitute
good increases
34
A shift in a demand
curve is caused by a
change in:
Number of buyers in the market

Tastes and preferences
Income
Expectations of buyers
Prices of related goods
35
Exhibit 5 Summary of the Impact of Changes in Nonprice

Determinants of Demand on the Demand Curve
Nonprice
Determinant
of Demand
1. Number
Relationship to
Changes in
Demand Curve
Direct
Shift in the
Demand Curve
Examples
of buyers
D1 D2
Q
P
D 2 D1
Immigration from
Mexico increases the
demand for Mexican
food products in
grocery stores.
A decline in the
birthrate reduces the
demand for baby
clothes.
Q
36

Nonprice
Determinant
of Demand
2. Tastes and
Relationship to
Changes in
Demand Curve
Direct
Shift in the
Demand Curve
Examples
preferences
D1 D2
Q
P
For no apparent
reason, consumers
want Beanie Babies
and demand
increases.
After a while, the fad
dies and demand
declines.
D 2 D1
Q
37

Nonprice
Determinant
of Demand
3. Income
Relationship to
Changes in
Demand Curve
Direct
Shift in the
Demand Curve
Examples
Consumers incomes
increase, and the
demand for steaks
increases.
a. Normal
goods
D1 D 2
Q
P
D 2 D1
A decline in income
decreases the
demand for air
travel.
Q
38

Nonprice
Determinant
of Demand
b. Inferior
Relationship to
Changes in
Demand Curve
Inverse
Shift in the
Demand Curve
Examples
P
Consumers incomes
increase, and the
demand for hamburger
D2 D1 decreases.
Q
goods
A decline in income
increases the demand
for bus service.
D 1 D2
Q
39

Nonprice
Determinant
of Demand
Relationship to
Changes in
Demand Curve
4. Expectations Direct
Shift in the
Demand Curve
Examples
of buyers
D 1 D2
Consumers expect that gasoline

will be in short supply next
month and prices will rise
sharply. Consequently,
consumers fill the tanks in their
cars this month, and there is an
increase in demand for gasoline.
P
Months later consumers expect
the price of gasoline to fall
soon, and the demand for
gasoline decreases.
D2 D1
40

Nonprice
Determinant
of Demand
Relationship to
Changes in
Demand Curve
5. Prices of
related
goods
Direct
a. Substitute
goods
Shift in the
Demand Curve
Examples
D2 D1
A reduction in the
price of tea decreases
the demand for coffee.
Q
An increase in the price

of airfares causes
higher demand for bus
D1 D2 transportation.
Q
41

Nonprice
Determinant
of Demand
Relationship to
Changes in
Demand Curve
Shift in the
Demand Curve
Examples
b. Complementary Inverse P
goods
D1 D2
D 2 D1
A decline in the price

of cellular service
increases the
demand for cell
phones.
A higher price for

peanut butter
decreases the
demand for jelly.
Q
42
What is supply?
Supply represents
the choice making
behavior of sellers
43
What is the
law of supply?
There is a direct relationship
between the price of a good
and the quantity sellers are
willing to offer for sale in a
defined time period, ceteris
paribus
44
Exhibit 6 An Individual Supply Curve for DVDs

An Individual Seller`s Demand Schedule for DVDs
Point
Price per
DVD
Quantity Supplied
(thousands per year)
$20
50
15
45
10
35
20
45
Exhibit 6 An Individual Sellers Supply Curve for DVDs
A
B
(dollars)
Price per DVD
20
15
10
5
0
10
20
30
Quantity of DVDs
40
50
46
Why do supply curves

have a positive slope?
Only at a higher price will it
be profitable for sellers to
incur the higher opportunity
cost associated with
supplying a larger quantity
47
What is market supply?

The horizontal
summation of all the
quantities supplied at
various prices that
might prevail in the
market
48
Exhibit 7 The Market Supply Curve for DVDs

Entertain City Supply
Curve
Price
S1
High Vibes Supply

Curve
Price
S2
Price
$25
$25
$25
15
15
15
0 15 25
25 35
Market Supply Curve
STOTAL
40
Quantity
Quantity
Quantity
60
49
IMPORTANT !
KNOW THE
DIFFERENCE BETWEEN
A CHANGE IN THE
QUANTITY SUPPLIED
AND A CHANGE IN
SUPPLY
50
When price changes,

what happens?
The curve does not

shift and there is a
change in the
quantity supplied
51
Increase in quantity
supplied
Upward movement along

the supply curve
Increase in
price
Decrease in quantity
supplied
Downward movement
along the supply curve
Decrease in
price
52
Exhibit 8(a) Supply Curve
Price per DVD

(dollars)
20
A change in price
causes a change in
the quantity supplied
15
10
5
0
10
20
30
Quantity of DVDs
(millions per year)
40
53
When a variable other

than price changes,
what happens?
The whole curve shifts
and there is a change
in supply
54
Decrease or increase
in supply
Leftward or rightward shift

in the supply curve
Change in
nonprice
determinant
55
Exhibit 8(b) Increase in Supply
S 1 S2
A
15
(dollars)
Price per DVD
20
10
5
0
10
20
30
Quantity of DVDs
(millions per year)
40
56
What is the
conclusion?
Changes in nonprice
determinants can
produce only a shift in
a supply curve and
not a movement along
the demand curve
57
Exhibit 9 Terminology for changes in price

and nonprice determinants of supply
58
55
Exhibit 9 Two types of Supply Changes Illustrated

S3
Price
per unit
Change in
Nonprice
Determinant
Causes
S1
S2
Change in
Nonprice
Determinant
Causes
Quantity of good or service per unit of time
59
A shift in a supply
curve is caused by a
change in:
Number of sellers in the market

Technology
Resource prices
Taxes and subsidies
Expectations of producers
Prices of other goods and
services the firm could produce
60
Exhibit 10 Summary of the Impact of Changes in

Nonprice Determinants of Demand on the Supply Curve
Nonprice
Determinant
of Demand
1. Number
of
sellers
Relationship to
Changes in
Demand Curve
Direct
Shift in the
Supply Curve
S1
Examples
The United States lowers

trade restrictions on
foreign textiles, and the
supply of textiles in the
United States increases.
S2
Q
P
S2
A severe drought destroys

the orange crop, and the
supply of oranges
decreases.
S1
Q
61

Nonprice
Determinant
of Demand
2. Technology
Relationship to
Changes in
Demand Curve
Direct
Shift in the
Supply Curve
S1
Examples
New methods of producing

automobiles reduce
production costs, and the
supply of automobiles
increases.
S2
Q
S2
S1
Technology is destroyed
in war, and production
costs increase; the result
is a decrease in the
supply of good X.
62

Nonprice
Determinant
of Demand
3. Resource
Relationship to
Changes in
Demand Curve
Inverse
Shift in the
Supply Curve
prices
S1
Examples
S2
A decline in the price of

computer chips increases
the supply of computers.
Q
P
S2
S1
An increase in the cost of

farm equipment decreases
the supply of soybeans.
Q
63

Nonprice
Determinant
of Demand
4. Taxes and
subsidies
Relationship to
Changes in
Demand Curve
Inverse
and
direct
Shift in the
Supply Curve
S2
Examples
S1
An increase in the per-pack

on cigarettes reduces the
supply of cigarettes.
Q
S1
S2
A government payment to
dairy farmers based on the
number of gallons
produced increases the
supply of milk.
Q
64

Nonprice
Determinant
of Demand
5. Expectations
Relationship to
Changes in
Demand Curve
Inverse P
Shift in the
Supply Curve
S2
Examples
S1
Q
S1
Oil companies anticipate a

substantial rise in future oil
prices, and this expectation
causes these companies to
decrease their current supply
of oil.
S2
Q
Farmers expect the future

price of wheat to decline,
so they increases the
present supply of wheat.
65

Determinants of Demand on the Supply Curve
Nonprice
Determinant
of Demand
Relationship to
Changes in
Demand Curve
6. Prices of
Inverse
other goods
and services
Shift in the
Supply Curve
S2
S1
Examples
A rise in brand-name drugs

causes drug companies to
decrease the supply of
generic drugs.
P
S1
S2
A decline in the price of

tomatoes causes farmers
to increase the supply of
cucumbers.
Q
66
What is a market?
Any arrangement in
which buyers and
sellers interact to
determine the price and
quantity of goods and
services exchanged
67
Where is the
equilibrium price?
At the price where the
quantity demanded
and the quantity
supplied are equal
68
Exhibit 11Demand, Supply,

and Equilibrium for Sneakers (pairs per year)
69
66
Exhibit 12 The Supply & Demand for Sneakers
120
(dollars)
Price per pair
90
Surplus
E
60
Shortage
30
D
0
20
50
80
Quantity of Sneakers
(thousands of pairs per year)
70
What is the
price system?
A mechanism that uses
the forces of supply
and demand to create
an equilibrium through
rising and falling prices
71
END
72

Lecture CH 3 Eft Market Demand & Supply

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Lecture CH 3 Eft Market Demand & Supply

Hochgeladen von

Copyright:

Verfügbare Formate

Chapter 3

Market Demand and Supply

Why is this chapter

What does ceteris

2011 South-Western, a part of Cengage Learning

What is the law of

Explain why consumers

Exhibit 1 An Individual Demand Curve for DVDs

2011 South-Western, a part of Cengage Learning

Exhibit 1 Individuals Demand Curve for DVDs

Price per DVD (dollars)

2011 South-Western, a part of Cengage Learning

Why do demand curves

Exhibit 2 The Market Demand Curve for DVDs

Marys Demand Curve

Market Demand Curve

When price changes,

Upward movement along

2011 South-Western, a part of Cengage Learning

Exhibit 3(a) A change in price causes a change in

the quantity demanded

Price per DVD

(millions per year)

When a variable other

Leftward or rightward shift

Exhibit 3(b) When the ceteris paribus assumption is

Exhibit 4 Terminology for changes in price and

Exhibit 4 Two types of Demand Changes Illustrated

Quantity of good or service per unit of time

What is a normal good?

What does a direct

The two variables

What does an inverse

What happens when

The demand curve

What happens when

What happens when

What happens when

Number of buyers in the market

2011 South-Western, a part of Cengage Learning

Exhibit 5 Summary of the Impact of Changes in Nonprice

2011 South-Western, a part of Cengage Learning

Exhibit 5 Summary of the Impact of Changes in Nonprice

2011 South-Western, a part of Cengage Learning

Exhibit 5 Summary of the Impact of Changes in Nonprice

2011 South-Western, a part of Cengage Learning

Exhibit 5 Summary of the Impact of Changes in Nonprice

2011 South-Western, a part of Cengage Learning

Exhibit 5 Summary of the Impact of Changes in Nonprice

Consumers expect that gasoline

Exhibit 5 Summary of the Impact of Changes in Nonprice

An increase in the price

Exhibit 5 Summary of the Impact of Changes in Nonprice

A decline in the price

A higher price for

Exhibit 6 An Individual Supply Curve for DVDs

2011 South-Western, a part of Cengage Learning

Exhibit 6 An Individual Sellers Supply Curve for DVDs

Price per DVD

Why do supply curves

What is market supply?

2011 South-Western, a part of Cengage Learning

Exhibit 7 The Market Supply Curve for DVDs