Download Chapter 3 - Supply and Demand

Fig. 1 The Demand Curve
Price per
Bottle
$4.00
A
When the price is $4.00
per bottle, 40,000
bottles are demanded
(point A).
B
2.00
At $2.00 per bottle,
60,000 bottles are
demanded (point B).
D
40,000
60,000
Number of Bottles
per Month
1
Fig. 2 A Shift of the Demand
Curve
An increase in income
shifts the demand curve
for maple syrup from D1
to D2. At each price, more
bottles are demanded
after the shift.
Price per
Bottle
B
C
$2.00
60,000
D1
D2
80,000
Number of Bottles
per Month
2
Fig. 3(a) Movements Along and
Shifts of the Demand Curve
Price
Price increase moves us
leftward along demand
curve
P2
Price increase moves us
rightward along demand
curve
P1
P3
Q2
Q1
Q3
Quantity
3
Fig. 3(b) Movements Along and
Shifts of the Demand Curve
Price
Entire demand curve shifts
rightward when:
• income or wealth ↑
• price of substitute ↑
• price of complement ↓
• population ↑
• expected price ↑
• tastes shift toward good
D2
D1
Quantity
4
Fig. 3(c) Movements Along and
Shifts of the Demand Curve
Price
Entire demand curve shifts
leftward when:
• income or wealth ↓
• price of substitute ↓
• price of complement ↑
• population ↓
• expected price ↓
• tastes shift toward good
D1
D2
Quantity
5
Fig. 4 The Supply Curve
Price per
Bottle
When the price is $2.00
per bottle, 40,000 bottles
are supplied (point F).
$4.00
2.00
S
G
At $4.00 per bottle,
quantity supplied is
60,000 bottles (point G).
F
40,000
60,000
Number of Bottles
per Month
6
Fig. 5 A Shift of the Supply Curve
Price per
Bottle
A decrease in transportation
costs shifts the supply curve for
maple syrup from S1 to S2.
S1
S2
At each price, more bottles
are supplied after the shift
$4.00
G
60,000
J
80,000
Number of Bottles
per Month
7
Fig. 6(a) Changes in Supply and in
Quantity Supplied
Price
S
Price increase moves
us rightward along
supply curve
P2
P1
Price increase moves
us leftward along
supply curve
P3
Q3
Q1
Q2
Quantity
8
Fig. 6(b) Changes in Supply and in
Quantity Supplied
Price
Entire supply curve shifts
rightward when:
• price of input ↓
• price of alternate good ↓
• number of firms ↑
• expected price ↑
• technological advance
• favorable weather
S1
S2
9
Quantity
Fig. 6(c) Changes in Supply and in
Quantity Supplied
Price
Entire supply curve shifts
rightward when:
• price of input ↑
• price of alternate good ↑
• number of firms ↓
• expected price ↑
• unfavorable weather
S2
S1
10
Quantity
Fig. 7 Market Equilibrium
Price per
Bottle
2. causes the price
to rise . . .
3. shrinking the
excess demand . . .
S
E
$3.00
1.00
H
4. until price reaches its
equilibrium value of $3.00
.
J
Excess Demand
D
1. At a price of $1.00 per
bottle an excess demand
of 50,000 bottles . . .
25,000 50,000 75,000
Number of Bottles
per Month
11
Fig. 8 Excess Supply and Price
Adjustment
Price per
Bottle
1. At a price of $5.00 per
bottle an excess supply
of 30,000 bottles . . .
Excess Supply at $5.00 S
$5.00
2. causes the
price to drop,
3.00
3. shrinking the
excess supply . . .
L
K
E
4. until price reaches its
equilibrium value of
$3.00.
D
35,000 50,000 65,000
Number of Bottles
per Month
12
Fig. 9 A Shift in Demand and a
New Equilibrium
Price per
Bottle
4. Equilibrium
price
increases
3. to a new
equilibrium.
S
$4.00
3.00
2. moves us along
the supply
curve . . .
F'
E
1. An increase in
demand . . .
D2
D1
5. and equilibrium quantity
increases too.
50,000 60,000
Number of Bottles of
Maple Syrup per Period
13
Fig. 10 A Shift of Supply and a
New Equilibrium
Price per
Bottle
$5.00
3.00
S2
S1
E'
E
D
35,000 50,000
Number of Bottles
14
Fig. 11 Changes in the Market for
Handheld PCs
Price per
Handheld
PC
3. moved the market to
a new equilibrium.
2. and a decrease
in demand . . .
4. Price
decreased . . .
A
$500
B
S2002
S2003
1. An increase in
supply . . .
$400
D2002
5. and quantity
decreased as well.
D2003
2.45 3.33
Millions of Handheld PCs
per Quarter
15
Fig. 12 A Price Ceiling in the
Market for Maple Syrup
5. With a black market, the
lower quantity sells for a
higher price than initially.
Price per
Bottle
3. and decreases
quantity supplied.
4. The result is a shortage
– the distance between
S
R and V.
T
$4.00
3.00
R
2.00
E
V
2. increases quantity
demanded
D
40,000 50,000 60,000
1. A price ceiling lower than
the equilibrium price . . .
Number of Bottles of
Maple Syrup per Period
16
Fig. 13 The Market for Oil
Price per
Barrel of Oil
S2
S1
E'
P2
E
P1
D
Q2
Q1
Barrels of Oil
17
Fig. 14 The Market for Natural Gas
Price per Cubic
Foot of Natural
Gas
S
F'
P4
F
D2
P3
D1
Q3
Q4
Cubic Feet of
Natural Gas
18