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Supply and
Demand
Chapter Outline
Market demand
Market supply
Market equilibrium
Comparative statics analysis
Supply, demand, and price
There is an inverse
relationship between
price and the quantity
demanded of a good or
service.
Graphical
Representation of
Demand
Algebraic
Representation of
Demand
Qd=700-100P
Step 1
assume all factors
except the price of
pizza are constant
Step 2
begin the analysis
in equilibrium as
shown by Q1 and P1
Step 3
assume that a new
study shows pizza
to be the most
nutritious of all fast
foods
consumers increase
their demand for
pizza as a result
Step 4
the shift in demand
results in a new
equilibrium price
(P2)
and a new
equilibrium quantity
(Q2)
Step 5
comparing the
new equilibrium
point with the
original one, we
see that both
equilibrium price
and quantity have
increased