Download Demand/Supply Curves and Elasticity

Demand/Supply Curves
and Elasticity
Mucho Importante in Economics…the
basis of it all!!!!
(pgs 57-68, Krugman)
12.1 Students understand common economic terms and concepts and economic reasoning.
12.2 Students analyze the elements of America's market economy in a global setting
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Supply and Demand in a Competitive
Market
 Competitive Market: Market with many buyers and
sellers of the same good or service
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No individual has any influence
 Supply and Demand Model
 Physically shows market behavior
 Key elements in Supply and Demand Model
 The demand curve
 The supply curve
 Factors that cause curve to shift (“shifters”)
 Equilibrium Price
 Changes in Equilibrium price when demand or supply
shift
Supply and Demand Model
The Demand Curve
 The higher the price, the fewer people who want to buy the good or
service
 The lower the price, the more people who want to buy the good or
service
 Demand Schedule: table that shows how much of good or service
consumers will buy at different prices
The Demand Curve Model
 Plot the Demand Schedule
 Vertical Axis is always price
 Horizontal is always quantity demanded
Law of Demand
 Curve slops downward: reflects the principle that a higher price
reduces the number of people willing to buy a good or
service…”able and willing”
 Exceptions
 Giffen Good (with increase in price, demand would not fall)
 Primarily seen with the poor – potatoes and rice

Veblen Good (demand stays the same or more as
prices go up)
 “Snob effect”
Shifts in the Demand Curve
 Different factors affect shifts in the quantity
demanded
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Graph curve shifts right or left depended on
the effect of the factor
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Difference btw “movements along the curve”
vs “shifts”
 Decrease in demand = left
 Increase in demand = right
Factors that Contribute to a Demand
Shift
 Changes in the price of related goods
 Substitutes (purchase instead, alternate)
 Complements (goods consumed together)
 Changes in income
 “normal” goods vs “inferior” goods (cars vs. busses)
 Changes in tastes
 Preferences (fads, fashion)
 Changes in expectations
 Sales after Christmas
Demand curve relies on “all things being equal”
The Supply Schedule
 Higher the price offered, the more willing to
sell…”quantity supplied”
 Supply Schedule
Supply Curve
 How much of a good or service people are
willing to sell at any given price
Supply “Shifters”
 Change in the quantity supplied at any given
price
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Movements along the supply: change in the quantity supplied of a good
that is the result of a change in that good’s price
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Shifts of the supply curve: change in input prices, technology,
expectations
Supply, Demand, and Equilibrium
 Determines the price of a good or service
 markets move toward equilibrium
 When the price has moved to a level at which the
quantity demanded equals the quantity supplied
 Equilibrium price or market clearing price: every buyer
willing to pay that price finds a seller willing to sell at that
price
 Shortages and surpluses?
Role of Prices in a Mixed Economy
(the United States for instance)
 Prices provide incentive for firms and workers
to produce
 Prices give markets flexibility to respond to
changing conditions
 Prices guide scare resources to their most
efficient uses
Government Intervention in Markets
 Price controls when too high for consumers
or too low for producers

Price floor: Prevents prices from going too
low, ex. minimum wage

Price ceiling: Prevents prices from going to
high, ex. rent control
Rationing and the Black Market
 Rationing: controlled distribution of a limited
supply of a good or service
 Black Markets: goods are traded at prices or
in quantities higher than allowed by law.
Supply/Demand and Markets
Vocabulary
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Competitive market
Demand Schedule
Supply Schedule
Demand Curve
Supply Curve
“Shifters” (both Demand and Supply)
Equilibrium
Shortages and Surpluses
Mixed economy
Price ceiling
Price floor
Rationing
Black Market