Download Demand III

Economics 100
Lecture 7
Demand III
Demand and Supply:
Predicting Changes in Price
and Quantity
A
change in demand
 A change in supply
 A change in both demand and supply
An Increase in Demand
 When



there is an increase in demand:
At the original price, there is a shortage
At the original quantity, buyers are willing
to pay more than the current price
The price rises
An Increase in Demand
 As



the price rises:
The quantity supplied increases (and also
the quantity demanded comes down a bit
from its current level)
The shortage is eventually eliminated
Let’s see how this process works
An Increase in Demand
 Initially,
demand and
supply are as
shown here
 The price is $3
and the
quantity is 4
million tapes a
week
An Increase in Demand
 Then,
demand
increases
 The
demand
curve
shifts
rightward.
An Increase in Demand
 At
the
original
price,
there is a
shortage
 At the
original
quantity,
buyers are
willing to
pay more
An Increase in Demand
 So,
the
price rises
 As the
price rises,
the
quantity
supplied
increases
An Increase in Demand
 In
the new
equilibrium,
the shortage
has been
eliminated
 The market
has pulled
more
resources into
the production
of this good.
A Decrease in Demand
 When



there is a decrease in demand:
At the original price, there is a surplus
At the original quantity, buyers are willing
to pay less than the current price (which is
the sellers’ minimum willingness to accept)
The price falls
A Decrease in Demand
 As



the price falls:
The quantity supplied decreases
The surplus is eventually eliminated
This process takes place in the opposite
direction to that we’ve just looked at
An Increase in Supply
 When



there is an increase in supply:
At the original price, there is a surplus
At the current quantity supplied, buyers are
willing to pay less than the current price
The price falls
An Increase in Supply
 As



the price falls:
The quantity demanded increases
The surplus is eventually eliminated
Let’s see how this process works
A Decrease in Supply
 When



there is a decrease in supply:
At the original price, there is a shortage
At the original quantity, buyers would be
willing to pay less than the current price
(but at the current quantity buyers are
willing to pay more than the original price)
The price rises
A Decrease in Supply
 As


the price rises:
The quantity demanded decreases The
shortage is eventually eliminated
This process works just like the ones we’ve
looked at, but in the opposite direction
Changes in both Demand and Supply
When both demand and supply increase, the
quantity traded increases but the price may
either rise or fall (or stay constant!)
 When demand decreases and supply increases,
the price falls and the quantity traded might
increase or decrease (or stay constant)
 When demand increases and supply decreases,
the price rises and the quantity traded might
increase or decrease or stay constant

Next
 Any
questions about today’s material?
 Practice with MyEconLab!
 Learn how to get the answers for this
lecture’s quizzes by using your own
graphs done by hand, use algebra for
linear functions, and excel files if you
are good at using it…
 Read Chapter 4 on Elasticity