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ECONOMICS
SECOND EDITION
ROBERT E. HALL
STANFORD UNIVERSITY
MARC LIEBERMAN
NEW YORK UNIVERSITY
CHAPTER 3
SUPPLY AND DEMAND
Table 2
Demand for Maple Syrup in Wichita
Price
(per Bottle)
Original
Quantity Demanded
(Bottles per Month)
New Quantity Demanded
After Increase in Income
(Bottles per Month)
$1.00
2.00
3.00
4.00
5.00
7,500
6,000
5,000
4,000
3,500
9,500
8,000
7,000
6,000
5,500
Figure 2
A Shift of
Demand
Curve
Price
per
Bottle
$2.00
B
C
D1
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
6,000
8,000
D2
Number
of Bottles
2
Figure 3
Changes in
Demand and
in Quantity
Demanded
(a)
Price
Price increase
moves us
leftward along
demand curve
P2
Price decrease
moves us
rightward along
demand curve
P1
P3
Q2
Q1
(b)
Q3
Quantity
(c)
Price
Price
Entire demand curve
shifts rightward when:
• income
• wealth
• price of substitute
• price of complement
• expected price
• tastes shift toward good
Entire demand curve
shifts leftward when:
• income
• wealth
• price of substitute
• price of complement
• expected price
• tastes shift away from good
D2
D1
D2
Quantity
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
D1
Quantity
3
Table 4 Increase in Supply of Maple Syrup in Wichita
Price
(per Bottle)
Quantity
Supplied
(Bottles/Month)
Quantity
Supplied
After Increase
in Supply
$1.00
2.00
3.00
4.00
5.00
2,500
4,000
5,000
6,000
6,500
4,500
6,000
7,000
8,000
8,500
Figure 5
A Shift of
the Supply
Curve
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
Price
per
Bottle
$4.00
S1
G
6,000
S2
J
8,000
Number
of Bottles
4
Figure 6
Changes in
Supply and in
Quantity
Supplied
(a)
Price
S
Price increase
moves us
rightward along
supply curve
P2
Price decrease
moves us
leftward along
supply curve
P1
P3
Q3
Q1
(b)
Price
Entire supply curve
shifts rightward when:
• price of input
• profitability of alternate
good
• productive capacity
• expected price
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
Q2
Quantity
(c)
Price
S1
S2
Quantity
Entire supply curve
shifts leftward when:
• price of input
• profitability of alternate
good
• productive capacity
• expected price
S2
S1
Quantity
5
Figure 7
Market Equilibrium
Price
per
Bottle
S
E
$3.00
1.00
H
Excess
Demand
I
D
2,500
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
5,000
7,500
Number
of Bottles
6
Figure 8
Excess Supply and Price Adjustment
Price
per
Bottle
$5.00
Excess Supply
at $5.00
K
S
L
E
3.00
D
3,500
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
5,000
6,500
Number
of Bottles
7
Figure 9
A Shift of Supply and a New Equilibrium
Price
per
Bottle
$5.00
S2
S1
E´
3.00
E
D
3,500
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
5,000
Number
of Bottles
8
Figure 10 A Shift of Demand and a New Equilibrium
Average
Price
S 1995
E´
$373,750
254,450
E
D2000
D1995
Number
of Houses
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
9
Figure 11 Simultaneous Shifts of Supply
and Demand
Price
per Hour
S 1990
S 2000
B
P2000
P1990
A
D 2000
D1990
Q 1990
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
Q 2000
Hours
of Day Care
10
Table 5
Effect of Supply and Demand Shifts on
Equilibrium Price (P) and Quantity (Q)
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
11
Figure 12 The Market for Oil
Price per
Barrel
of Oil
S2
S1
E´
P2
E
P1
D
Q2
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
Q1
Barrels
of Oil
12
Figure 13 The Market for Natural Gas
Price per
Cubic Foot
of Natural
Gas
S
F´
P4
F
D2
P3
D1
Q3
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 3 / SUPPLY AND DEMAND
© 2001 South-Western
Q4
Cubic Feet
of Natural Gas
13