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Managerial Economics in a Global Economy Chapter 1: Appendix The Basics of Demand, Supply, and Equilibrium PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Law of Demand • A decrease in the price of a good, all other things held constant, will cause an increase in the quantity demanded of the good. • An increase in the price of a good, all other things held constant, will cause a decrease in the quantity demanded of the good. PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Quantity Demanded Price An increase in price causes a decrease in quantity demanded. P1 P0 Q1 PowerPoint Slides by Robert F. Brooker Q0 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Quantity Demanded Price A decrease in price causes an increase in quantity demanded. P0 P1 Q0 PowerPoint Slides by Robert F. Brooker Q1 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Changes in Demand • Change in Buyers’ Tastes • Change in Buyers Incomes – Normal Goods – Inferior Goods • Change in the Number of Buyers • Change in the Price of Related Goods – Substitute Goods – Complementary Goods PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Demand An increase in demand refers to a rightward shift in the market demand curve. Price P0 Q0 PowerPoint Slides by Robert F. Brooker Q1 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Demand A decrease in demand refers to a leftward shift in the market demand curve. Price P0 Q1 PowerPoint Slides by Robert F. Brooker Q0 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Law of Supply • A decrease in the price of a good, all other things held constant, will cause a decrease in the quantity supplied of the good. • An increase in the price of a good, all other things held constant, will cause an increase in the quantity supplied of the good. PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Quantity Supplied A decrease in price causes a decrease in quantity supplied. Price P0 P1 Q1 PowerPoint Slides by Robert F. Brooker Q0 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Quantity Supplied An increase in price causes an increase in quantity supplied. Price P1 P0 Q0 PowerPoint Slides by Robert F. Brooker Q1 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Changes in Supply • Change in Production Technology • Change in Input Prices • Change in the Number of Sellers PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Supply An increase in supply refers to a rightward shift in the market supply curve. Price P0 Q0 PowerPoint Slides by Robert F. Brooker Q1 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Change in Supply A decrease in supply refers to a leftward shift in the market supply curve. Price P0 Q1 PowerPoint Slides by Robert F. Brooker Q0 Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Equilibrium • Market equilibrium is determined at the intersection of the market demand curve and the market supply curve. • The equilibrium price causes quantity demanded to be equal to quantity supplied. PowerPoint Slides by Robert F. Brooker Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Equilibrium Price D S P Q PowerPoint Slides by Robert F. Brooker Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Equilibrium Price D0 D1 S0 An increase in demand will cause the market equilibrium price and quantity to increase. P1 P0 Q0 Q1 PowerPoint Slides by Robert F. Brooker Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Equilibrium Price D1 D0 S0 A decrease in demand will cause the market equilibrium price and quantity to decrease. P0 P1 Q1 Q0 PowerPoint Slides by Robert F. Brooker Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Equilibrium Price D0 S0 P0 P1 Q0 Q1 PowerPoint Slides by Robert F. Brooker S1 An increase in supply will cause the market equilibrium price to decrease and quantity to increase. Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Market Equilibrium Price D0 S1 P1 P0 Q1 Q0 PowerPoint Slides by Robert F. Brooker S0 A decrease in supply will cause the market equilibrium price to increase and quantity to decrease. Quantity Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.