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Demand, Supply, &
Market Equilibrium
UNIT 1 DAY 5 & 6
RIXIE
Two major concepts:
 Demand:
concerns consumers – deals with
how much of something they are willing
and able to buy at a series of prices
 Supply:
concerns producers– deals with
how much of something they are willing
and able to make available at a series of
prices
Law of Demand:
All else equal, as
price falls, quantity
demanded rises,
and as price rises,
quantity
demanded falls
Law of Supply:
All else equal, as
price rises, the
quantity supplied
rises; as price falls,
the quantity
supplied falls
Movement along the Curves
 Movement
from one point to another along a
demand curve demonstrates a change in
quantity demanded, as a result of a change in
price.
 Movement from one point to another along a
supply curve demonstrates a change in
quantity supplied, as a result of a change in
price.
 Using the correct terminology is very
important!!!
Shifting the Curves
 When
the “other things equal” situation changes,
it can cause the demand or supply curve to shift.
 Situations
that cause this are called determinants.
 When
the demand curve shifts left or right, we
refer to this as a decrease or an increase in
demand.
 When
the supply curve shifts left or right, we refer
to this as a decrease or an increase in supply.
Determinants of
Demand
 Change in:
Consumer tastes
# of buyers
Consumer income
Price of a
complimentary or
substitute goods
Consumer
expectations
Determinants of
Supply
 Change in:
Resource or input
price
Technology
Taxes or subsidies
Price of other goods
Producer
expectations
# of suppliers
Types of Goods

Normal v. Inferior
 Normal
goods are
things you buy more of
when you have more $
(electronics / nice
clothes)
 Inferior
goods are
things you buy less of
when you have more $
(Ramen noodles)
Types of Goods
 Substitute
v.
Complimentary
A
substitute good can
be used in place of
another good (Nikes &
Reeboks)
 A complimentary good
is one that is used
together with another
good (movies &
popcorn)
Equilibrium: a state of balance between
opposing forces; in a free market, it is
found at the price at which quantity
demanded and quantity supplied are
equal.
-Graphically, it is found
where the supply and
demand curve intersect.
**Label your
graphs as
much as
possible!!!
Watch this video (from the
beginning to 2:36) and answer the
following questions:
https://www.youtube.com/watch?v=7eZcPs9z9OA

What is a surplus?

What is a shortage?

Explain how market forces tend to push toward
equilibrium price over time.
Complex cases

When both supply and demand change, it is not
always possible to predict how equilibrium price
and quantity will change.

You can determine how one of the variables
(price or quantity) will change, but the other will
be indeterminate.
For example, if supply increases
and demand decreases:

Both of these changes result in a decrease in
equilibrium price.

But what about quantity?

Increase in supply increases equilibrium quantity,
but decrease in demand decreases equilibrium
quantity. So the change in quantity is
indeterminate.