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Sect. 2 - Supply and Demand
Module 5 - Intro & Demand
What you will learn:
• What a competitive market is and how it is described by the
supply and demand model
• What the demand curve is
• The difference between movements along the demand curve
and changes in demand
• The factors that shift the demand curve
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Sect. 2 - Supply and Demand
Module 5 - Intro & Demand
Law of Demand -
The lower the price of a good, the higher the quantity demanded
- the higher the price, the lower the quantity demanded
Law of Demand
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Sect. 2 - Supply and Demand
Module 5 - Intro & Demand
Law of Demand -
The lower the price of a good, the higher the quantity demanded
- the higher the price, the lower the quantity demanded
Demand Schedule -
A table showing how much of a good or service consumers are
willing to buy at different prices
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Price
$8
3
$7
5
$6
7
$5
10
$4
12
$3
16
$2
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Sect. 2 - Supply and Demand
Module 5 - Intro & Demand
Law of Demand -
The lower the price of a good, the higher the quantity demanded
- the higher the price, the lower the quantity demanded
Demand Schedule -
A table showing how much of a good or service consumers are
willing to buy at different prices
Demand Curve A graph that represents the demand schedule
- shows the law of demand for a given good or service
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Sect. 2 - Supply and Demand
Module 5 - Intro & Demand
Law of Demand -
The lower the price of a good, the higher the quantity demanded
- the higher the price, the lower the quantity demanded
Demand Schedule -
A table showing how much of a good or service consumers are
willing to buy at different prices
Demand Curve A graph that represents the demand schedule
- shows the law of demand for a given good or service
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Shifts of the Demand Curve A change in the demand at all prices
- Increase in demand - shifts demand curve to the right
- Decrease in demand - shifts demand curve to the left
*Different than a move along the demand curve due to change in
price
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Shifts of the Demand Curve A change in the demand at all prices
- Increase in demand - shifts demand curve to the right
- Decrease in demand - shifts demand curve to the left
*Different than a move along the demand curve due to change in
price
Demand Curve Shift
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Shifts of the Demand Curve A change in the demand at all prices
- Increase in demand - shifts demand curve to the right
- Decrease in demand - shifts demand curve to the left
*Different than a move along the demand curve due to change in
price
Causes of Shift in Demand curve:
1) Change in price of related good Substitutes Goods that are used in place of another good
- as the price of a good increases consumers buy less of it
- so the demand for its substitute increases
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Decrease in Quantity
Demanded for Butter
Increase in Demand
for Margarine
5
5
4
4
3
Price $
Price $
B
2
3
2
A
1
1
0
1
2
3
Quantity
4
0
1
2
3
Quantity
4
Shifts of the Demand Curve A change in the demand at all prices
- Increase in demand - shifts demand curve to the right
- Decrease in demand - shifts demand curve to the left
*Different than a move along the demand curve due to change in
price
Causes of Shift in Demand curve:
1) Change in price of related good Substitutes Goods that are used in place of another good
- as the price of a good increases consumers buy less of it
- so the demand for its substitute increases
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Compliments Two goods that are bought and used together
- as the price of a good increases consumers buy less of it
- so the demand for its compliment also decreases
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Decrease in Quantity
Demanded for
Hotdogs
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Decrease in Demand
for Buns
5
4
4
3
Price $
Price $
B
2
3
2
A
1
1
0
1
2
3
Quantity
4
0
1
2
3
Quantity
4
Quick Check:
If the price of a good increases, the demand for a
increase
substitute good will _____________?
If the price of a good decreases, the demand for a
increase
compliment good will _____________?
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2) Change in Income A rise in consumer incomes will cause the demand
for most goods to increase (shift right)
Normal Goods Goods who’s demand increases when incomes increase
Inferior Goods Goods who’s demand decreases when incomes increase
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2) Change in Income A rise in consumer incomes will cause the demand
for most goods to increase (shift right)
Normal Goods Goods who’s demand increases when incomes increase
Inferior Goods Goods who’s demand decreases when incomes increase
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Quick Check:
If your income increases, your demand for inferior
decrease
goods will _____________?
If your income decreases, your demand for normal
decrease
goods will _____________?
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2) Change in Income A rise in consumer incomes will cause the demand
for most goods to increase (shift right)
Normal Goods Goods who’s demand increases when incomes increase
Inferior Goods Goods who’s demand decreases when incomes increase
3) Change in Tastes Fads and marketing
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Demand Curve for Fad Items
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Price $
4
3
2
1
0
1
2
3
Quantity
4
5
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Demand Curve for Fad Items
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Price $
4
3
2
1
0
1
2
3
Quantity
4
5
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2) Change in Income A rise in consumer incomes will cause the demand
for most goods to increase (shift right)
Normal Goods Goods who’s demand increases when incomes increase
Inferior Goods Goods who’s demand decreases when incomes increase
3) Change in Tastes Fads and marketing
4) Change in Expectations Expectations about the future affect our demand for goods
Ex: Hurricane is coming:
- Home Depot sells out of plywood and generators
5) Change in Number of Consumers As population grows, total demand will increase even if
individual demand remains unchanged
Change in Demand Curve
Module 6 - Supply and Equilibrium
What you will learn:
• What the supply curve is
• The difference between movements along the supply curve and
changes in supply
• The factors that shift the supply curve
• How supply and demand curves determine a market's
equilibrium price and equilibrium quantity
• In the case of a shortage or surplus, how price moves the
market back to equilibrium
Module 6 - Supply and Equilibrium
Law of Supply Producers offer more of a good as its price increases and less
as its price falls
Supply Schedule A table showing how much of a good or service producers are
willing to supply at different prices
Supply Curve A graph that represents the law of supply for a good or service
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Module 6 - Supply and Equilibrium
Law of Supply Producers offer more of a good as its price increases and less
as its price falls
Supply Schedule A table showing how much of a good or service producers are
willing to supply at different prices
Supply Curve A graph that represents the law of supply for a good or service
Supply Curve
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Shifts in the Supply Curve A change in the quantity supplied at all prices
*Different than a move along the supply curve due to change in
price
Shifts in the Supply Curve A change in the quantity supplied at all prices
*Different than a move along the supply curve due to change in
price
1) Change in input prices A rise in the cost of inputs will cause a fall in supply
(shift left) because the good is more expensive to produce
- a fall in the cost of inputs will cause an increase in supply
(shift right)
2) Change in Prices of Related Goods A producer of multiple goods will increase or decrease
production of one good as the price of another good changes
3) Technology Advances in technology can lower production costs
- causes a rightward shift in the supply curve
4) Change in Expectation Anticipated future price increase will reduce supply today
- Anticipated future price decrease will increase supply today
5) Change in Number of Producers As with demand, increase in number of producers will
increase total supply of a good or service
Equilibrium Price The point at which the demand for a good is equal to supply
- also known as the Market Clearing Price
This is also the point of the Equilibrium Quantity
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Equilibrium Price The point at which the demand for a good is equal to supply
- also known as the Market Clearing Price
This is also the point of the Equilibrium Quantity
Equilibrium
Equilibrium Price The point at which the demand for a good is equal to supply
- also known as the Market Clearing Price
This is also the point of the Equilibrium Quantity
Surplus When quantity supplied is greater than quantity demanded
- solved by lowering price and decreasing production
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Equilibrium Price The point at which the demand for a good is equal to supply
- also known as the Market Clearing Price
This is also the point of the Equilibrium Quantity
Surplus When quantity supplied is greater than quantity demanded
- solved by lowering price and decreasing production
Shortage When quantity demanded is greater than quantity supplied
- solved by raising price and increasing production
Equilibrium Price The point at which the demand for a good is equal to supply
- also known as the Market Clearing Price
This is also the point of the Equilibrium Quantity
Surplus When quantity supplied is greater than quantity demanded
- solved by lowering price and decreasing production
Shortage When quantity demanded is greater than quantity supplied
- solved by raising price and increasing production
*Markets always move toward equilibrium
Surplus / Shortage
Module 7 - Change in Equilibrium
What you will learn:
• How equilibrium price and quantity are affected when there is a
change in either supply or demand
• How equilibrium price and quantity are affected when there is a
simultaneous change in both supply and demand
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Increase in Demand -
Shift in demand curve to the right
- Leads to a shortage / new higher equilibrium price
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Increase in Demand -
Shift in demand curve to the right
- Leads to a shortage / new higher equilibrium price
Decrease in Demand Shift in demand curve to the left
- Leads to a surplus / new lower equilibrium price
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Increase in Demand -
Shift in demand curve to the right
- Leads to a shortage / new higher equilibrium price
Decrease in Demand Shift in demand curve to the left
- Leads to a surplus / new lower equilibrium price
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Decrease in Supply -
Shift in supply curve to the left
- Leads to a shortage / new higher equilibrium price
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Decrease in Supply -
Shift in supply curve to the left
- Leads to a shortage / new higher equilibrium price
Increase in Supply Shift in supply curve to the right
- Leads to a surplus / new lower equilibrium price
Supply Curve Shift
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Simultaneous Shifts of Demand & Supply Curves -
When both demand & supply increase
- equilibrium quantity rises - equilibrium price rises or falls
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Simultaneous Shifts of Demand & Supply Curves -
When both demand & supply increase
- equilibrium quantity rises - equilibrium price rises or falls
When both demand & supply decrease
- equilibrium quantity falls - equilibrium price rises or falls
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Simultaneous Shifts of Demand & Supply Curves -
When both demand & supply increase
- equilibrium quantity rises - equilibrium price rises or falls
When both demand & supply decrease
- equilibrium quantity falls - equilibrium price rises or falls
When demand increases and supply decreases
- equilibrium price rises - equilibrium quantity rises or falls
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Simultaneous Shifts of Demand & Supply Curves -
When both demand & supply increase
- equilibrium quantity rises - equilibrium price rises or falls
When both demand & supply decrease
- equilibrium quantity falls - equilibrium price rises or falls
When demand increases and supply decreases
- equilibrium price rises - equilibrium quantity rises or falls
When demand decreases and supply increases
- equilibrium price falls - equilibrium quantity rises or falls
Module 7 - Change in Equilibrium
Demand & Supply Curve Shifts Simultaneous Shifts of Demand & Supply Curves -
When both demand & supply increase
- equilibrium quantity rises - equilibrium price rises or falls
When both demand & supply decrease
- equilibrium quantity falls - equilibrium price rises or falls
When demand increases and supply decreases
- equilibrium price rises - equilibrium quantity rises or falls
When demand decreases and supply increases
- equilibrium price falls - equilibrium quantity rises or falls
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
4) Decrease in supply
5) Both demand & supply increase
6) Both demand & supply decrease
7) Demand increases and supply decreases
8) Demand decreases and supply increases
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
4) Decrease in supply
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
4) Decrease in supply
5) Both demand & supply increase
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
4) Decrease in supply
5) Both demand & supply increase
6) Both demand & supply decrease
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
4) Decrease in supply
5) Both demand & supply increase
6) Both demand & supply decrease
7) Demand increases and supply decreases
Draw and label graphs for each including demand &
supply curves, shift arrows, equilibrium points, and if
price and quantity increase, decrease or indeterminate.
1) Increase in demand
2) Decrease in demand
3) Increase in supply
4) Decrease in supply
5) Both demand & supply increase
6) Both demand & supply decrease
7) Demand increases and supply decreases
8) Demand decreases and supply increases
Module 8 - Price Controls
What you will learn:
• The meaning of price controls
• How price controls can create problems and make a
market inefficient
• Who benefits and who loses from price controls, and
why they are used
Module 8 - Price Controls
Price Ceilings Maximum price that can legally be charged for a good or service
- Government imposed price control
What is the effect?
Module 8 - Price Controls
Price Ceilings Maximum price that can legally be charged for a good or service
- Government imposed price control
Creates a Shortage!
Module 8 - Price Controls
Price Ceilings Maximum price that can legally be charged for a good or service
- Government imposed price control
Black Market When producers and consumers conduct business outside of
Govt. regulations
- Illegal - throws the system out of balance
Price Floors Minimum price that must be paid for a good or service
What is the Effect?
Module 8 - Price Controls
Price Ceilings Maximum price that can legally be charged for a good or service
- Government imposed price control
Black Market When producers and consumers conduct business outside of
Govt. regulations
- Illegal - throws the system out of balance
Price Floors Minimum price that must be paid for a good or service
Creates a Surplus?
Minimum Wage Minimum price that an employer can pay a worker for one hour
of labor - set by federal government
- Price floor on wages
What is the Effect?
Minimum Wage
10
$8.00
Wage $
$6.00
4
2
0
10
30
40
20
Quantity of Workers
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Minimum Wage Minimum price that an employer can pay a worker for one hour
of labor - set by federal government
- Price floor on wages
Surplus of Labor!
Minimum Wage
Module 9 - Quantity Controls
What you will learn:
• The meaning of quantity controls
• How quantity controls create problems and can make a market
inefficient
•
Who benefits and who loses from quantity controls
Module 9 - Quantity Controls
Quantity controls / Quota A limit on the quantity of a good that can be bought or sold
- Government imposed quantity control
What is the Effect?
Module 9 - Quantity Controls
Quantity controls / Quota A limit on the quantity of a good that can be bought or sold
- Government imposed quantity control
Module 9 - Quantity Controls
Quantity controls / Quota A limit on the quantity of a good that can be bought or sold
- Government imposed quantity control
Wedge The difference between the demand price & supply price of a
good with imposed quota - known as Quota Rent
Deadweight Loss The lost gains due to quantity controls
- in the “Taxi” scenario it is the lost rides the riders woud like
& the lost income the drivers miss out on
The End
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