Download Chapter 3 - Understanding Individual Markets:

Markets
Demand Defined
Demand Graphed
Changes in
Demand
3
C HAPTE R
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
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Slide
End
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3-1
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Slide
Individual
Markets:
Demand & Supply
Copyright McGraw-Hill/Irwin, 2005
MARKETS DEFINED
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
POTENTIAL
BUYERS
Shortages
Key Terms
Previous
Slide
End
Show
3-2
Next
Slide
POTENTIAL
SELLERS
MARKETS
Copyright McGraw-Hill/Irwin, 2005
DEMAND DEFINED
Markets
DEMAND SCHEDULE
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3-3
Next
Slide
P
$5
4
3
2
1
QD
10
20
35
55
80
Various Amounts
A Series of Possible Prices
…a specified time period
…other things being equal
Copyright McGraw-Hill/Irwin, 2005
LAW OF DEMAND
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3-4
Next
Slide
An inverse relationship exists
between price and quantity
demanded
• As Price Falls…
…Quantity Demanded Rises
• As Price Rises…
…Quantity Demanded Falls
Copyright McGraw-Hill/Irwin, 2005
LAW OF DEMAND
Markets
Demand Defined
Demand Graphed
Changes in
Demand
• Diminishing Marginal Utility
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
3-5
Copyright McGraw-Hill/Irwin, 2005
LAW OF DEMAND
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
• Diminishing Marginal Utility
• Income Effect
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
3-6
Copyright McGraw-Hill/Irwin, 2005
LAW OF DEMAND
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
• Diminishing Marginal Utility
• Income Effect
• Substitution Effect
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
3-7
Copyright McGraw-Hill/Irwin, 2005
LAW OF DEMAND
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
•
•
•
•
•
Diminishing Marginal Utility
Income Effect
Substitution Effect
Demand Curve
Individual and Market
Demand
End
Show
3-8
Copyright McGraw-Hill/Irwin, 2005
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3-9
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 10
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 5055 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 11
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
35
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 12
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 13
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 14
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Connect the Points
4
3
2
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 15
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
What if
Demand
Increases?
4
3
2
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 16
Next
Slide
Increase
in Quantity
Demanded
P
Demand Defined
CORN
P
$5
4
3
2
1
QD
10 30
20 40
35 60
55 80
80 +
$5
4
3
2
1
o
Increase
in
Demand
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
D’
D
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 17
Next
Slide
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
What if
Demand
Decreases?
4
3
2
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
GRAPHING DEMAND
Price of Corn
Markets
P
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 18
Next
Slide
CORN
P
$5
4
3
2
1
QD
10 -20 10
35 20
55 40
80 60
Decrease
in Quantity
Demanded
$5
4
3
2
1
o
Decrease
in
Demand
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
D
D’
Q
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
– Normal (Superior) & Inferior Goods
Equilibrium
Surpluses
• Prices of Related Goods
Shortages
Key Terms
Previous
Slide
End
Show
3 - 19
DETERMINANTS OF
DEMAND
• Tastes
• Number of Buyers
• Income
Next
Slide
– Substitutes & Complements
– Unrelated Goods
• Expectations
Copyright McGraw-Hill/Irwin, 2005
SUPPLY DEFINED
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
SUPPLY SCHEDULE
Various Amounts
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 20
Next
Slide
Copyright McGraw-Hill/Irwin, 2005
CORN
P QS
$1
2
3
4
5
5
20
35
50
60
SUPPLY DEFINED
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 21
Next
Slide
SUPPLY SCHEDULE
Various Amounts
CORN
P QS
$1
A Series of Possible Prices 2
3
4
5
5
20
35
50
60
…a specified time period
…other things being equal
Copyright McGraw-Hill/Irwin, 2005
LAW OF SUPPLY
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Key Terms
End
Show
3 - 22
• As Price Rises…
…Quantity Supplied Rises
Shortages
Previous
Slide
A direct relationship exists
between price and quantity
supplied
Next
Slide
• As Price Falls…
…Quantity Supplied Falls
Copyright McGraw-Hill/Irwin, 2005
GRAPHING SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 23
Next
Slide
o 5 10
20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60
50
35
20
5
GRAPHING SUPPLY
Plot the Points
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
$5
CORN
P QS
4
$5
4
3
2
1
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 24
Next
Slide
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60
50
35
20
5
GRAPHING SUPPLY
Plot the Points
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
$5
CORN
P QS
4
$5
4
3
2
1
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 25
Next
Slide
o
10 20 3035 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60
50
35
20
5
GRAPHING SUPPLY
Plot the Points
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
$5
CORN
P QS
4
$5
4
3
2
1
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 26
Next
Slide
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60
50
35
20
5
GRAPHING SUPPLY
Plot the Points
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
$5
CORN
P QS
4
$5
4
3
2
1
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 27
Next
Slide
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
S
$5
CORN
P QS
4
$5
4
3
2
1
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 28
Next
Slide
o
Connect the Points
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
S
$5
What if
Supply
Increases?
4
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 29
Next
Slide
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
CORN
P QS
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
$5
4
Increase
in
Supply
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 30
Next
Slide
S
S’
CORN
P QS
$5
4
3
Increase 2
in Quantity 1
Supplied
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60 80
50 70
35 60
20 45
5 30
GRAPHING SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
4
Supply Graphed
Changes in Supply
3
Equilibrium
Surpluses
2
Shortages
S
$5
Key Terms
What if
Supply
Decreases?
1
Previous
Slide
End
Show
3 - 31
Next
Slide
o
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
CORN
P QS
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn Decrease
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
P
$5
in
Supply
4
3
Equilibrium
Surpluses
2
Shortages
Key Terms
1
Previous
Slide
End
Show
3 - 32
Next
Slide
o
S
CORN
P QS
$5
4
3
Decrease
2
in Quantity 1
Supplied
Supply Graphed
Changes in Supply
S’
10 20 30 40 50 60 70 80
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
60 45
50 30
35 20
20 0
5 --
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 33
Next
Slide
DETERMINANTS OF
SUPPLY
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers
Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 34
Next
Slide
DETERMINANTS OF
SUPPLY
• Resource Prices
• Technology
Combining
• Taxes & Subsidies
with
• Prices Demand
of Other Goods
• Price Expectations
• Number of Sellers
Copyright McGraw-Hill/Irwin, 2005
MARKET DEMAND &
SUPPLY
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 35
BUSHELS
OF CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
MARKET
x
200 DEMAND
B 2,000
U
Y
E
R
4,000
7,000
11,000
16,000
S
BUSHELS
OF CORN
P QS
$5
4
3
2
1
60
50
35
20
5
MARKET
200 SUPPLY
S 12,000
x
E
L
L
E
R
S
Next
Slide
EQUILIBRIUM
Copyright McGraw-Hill/Irwin, 2005
10,000
7,000
4,000
1,000
MARKET DEMAND &
SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 36
Next
Slide
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
S
$5
CORN
MARKET
P Q
4
Market
S
$5 12,000
Clearing
Equilibrium 4 10,000
3
3 7,000
2 4,000
1 1,000
2
1
o
D
2
4
6
78
10 12 14 16
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
MARKET DEMAND &
SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 37
Next
Slide
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
$5
Surplus
CORN
MARKET
S
P Q
At a $4 price
4
$5
supplied than 4
demanded 3
2
1
more is being
3
2
1
o
D
2
4
6
78
10 12 14 16
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
S
12,000
10,000
7,000
4,000
1,000
MARKET DEMAND &
SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 38
Next
Slide
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
S
$5
CORN
MARKET
P Q
At a $2 price
4
$5
demanded than 4
3
supplied
2
1
Shortage
more is being
3
2
1
o
D
2
4
6
78
101112 14 16
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
S
12,000
10,000
7,000
4,000
1,000
MARKET DEMAND &
SUPPLY
Price of Corn
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 39
Next
Slide
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
$5
Surplus
S
4
3
2
Shortage
1
o
CORN
MARKET
P Q
$5
4
3
2
1
D
2
4
6
78
101112 14 16
Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
Q
S
12,000
10,000
7,000
4,000
1,000
MARKET EQUILIBRIUM
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 40
Next
Slide
•
•
•
•
Equilibrium Price & Quantity
Rationing Function of Prices
Changes in Demand
Changes in Quantity
Demanded
• Changes in Supply
• Changes in Quantity Supplied
Copyright McGraw-Hill/Irwin, 2005
Complex Cases
Multiple Shifts…
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Key Terms
End
Show
3 - 41
–Prices Decrease
–Quantity Indeterminate
• Supply Decreases;
Demand Increases
Shortages
Previous
Slide
• Supply Increases;
Demand Decreases
Next
Slide
–Price Increases
–Quantity Indeterminate
Copyright McGraw-Hill/Irwin, 2005
Complex Cases
Multiple Shifts…
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Key Terms
End
Show
3 - 42
–Prices Indeterminate
–Quantity Increases
• Supply Decreases;
Demand Decreases
Shortages
Previous
Slide
• Supply Increases;
Demand Increases
Next
Slide
–Price Indeterminate
–Quantity Decreases
Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 43
Next
Slide
Government Set Prices
• Price Ceilings
–Shortages
–Rationing Problem
–Black Markets
–Rent Controls
• Price Floors
–Surpluses
Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 44
Next
Slide
Government Set Prices
• Price Ceilings
–Shortages
–Rationing Problem
–Black Markets
–Rent Controls
• Price Floors
–Surpluses
Copyright McGraw-Hill/Irwin, 2005
Key Terms
market
demand
demand schedule
law of demand
diminishing marginal utility
income effect
substitution effect
demand curve
determinants of demand
normal goods
inferior goods
substitute good
complementary good
change in demand
Copyright McGraw-Hill/Irwin, 2005
change in quantity demanded
supply
supply schedule
law of supply
supply curve
determinants of supply
change in supply
change in quantity supplied
surplus
shortage
equilibrium price
equilibrium quantity
rationing function of prices
price ceiling and floor
BACK
END
Next:
Markets
Demand Defined
Demand Graphed
Changes in
Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
End
Show
3 - 46
Next
Slide
Chapter 4
Copyright McGraw-Hill/Irwin, 2005