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Fifth Edition
Economics
A Contemporary Introduction
William A. McEachern
The Market System
1
Exhibit 1a: The Demand
Schedule for Milk
Price per
Quart
a
b
c
d
e
The Market System
$1.25
1.00
0.75
0.50
0.25
Quantity Demanded
per Month
(millions of quarts)
8
14
20
26
32
2
Exhibit 1b: The Demand
Curve for Milk
Price per quart
$1.25
1.00
0.75
0.50
0.25
0
a
b
c
d
e
D
8 14 20 26 32
Millions of quarts per month
The Market System
3
Exhibit 2: An Increase in the
Market Demand for Milk
f
Price per quart
$1.25
b
1.00
g
0.75
0.50
D'
0.25
D
0
8
14
20
26
32
Millions of quarts per month
The Market System
4
Exhibit 3a: The Supply Schedule
for Milk
Price per
Quart
$1.25
1.00
0.75
0.50
0.25
The Market System
Quantity Supplied
per Month
(millions of quarts)
28
24
20
16
12
5
Exhibit 3b: The Supply Curve
for Milk
Price per quart
S
$1.25
1.00
0.75
0.50
0.25
0
12 16 20 24 28
Millions of quarts per month
The Market System
6
Exhibit 4: An Increase in
the Supply of Milk
S
S'
Price per quart
$1.25
h
1.00
0.75
i
j
0.50
0.25
0
12
The Market System
16 20 24 28
Millions of quarts per month
7
Exhibit 5a: Equilibrium in the
Milk Market (Market Schedules)
Millions of Quarts per Month
Price per Quantity
Quantity Surplus or
Quart
Demanded Supplied Shortage
$1.25
1.00
0.75
0.50
0.25
The Market System
8
14
20
26
32
28
24
20
16
12
Surplus of 20
Surplus of 10
Equilibrium
Shortage of 10
Shortage of 20
Price
Will
Fall
Fall
Remain the same
Rise
Rise
8
Exhibit 5b: Equilibrium in the
Milk Market (Market Curves)
Price per quart
S
$1.25
Surplus
1.00
c
0.75
0.50
Shortage
0.25
D
0
14 16
The Market System
20 24 26
Millions of quarts per month
9
Exhibit 6: Effects of an
Increase in Demand
Price per quart
S
$1.00
0.75
D'
D
0
20 24
The Market System
30
Millions of quarts per month
10
Exhibit 7: Effects of an
Increase in Supply
Price per quart
S
S'
$0.75
0.50
D
0
20
The Market System
26 30
Millions of quarts per month
11
Exhibit 8a: Indeterminate Effect of an
Increase in Both Supply and Demand (Shift
in Demand Dominates)
S
Price
S'
p'
p
D'
D
0
Q
The Market System
Q' Units per period
12
Exhibit 8b: Indeterminate Effect of an
Increase in Both Supply and Demand (Shift
in Supply Dominates)
S
Price
S"
p
p"
D"
D
0
The Market System
Q
Q"
Units per period
13
Exhibit 9: Effects of Changes
in Both Supply and Demand
Change in Demand
Change in Supply
Demand increases
Supply
increases
Supply
decreases
The Market System
Equilibrium
price change
is indeterminate.
Demand decreases
Equilibrium
price falls.
Equilibrium
quantity increases.
Equilibrium
quantity change
is indeterminate.
Equilibrium
price rises.
Equilibrium price
change is indeterminate.
Equilibrium
quantity change
is indeterminate.
Equilibrium
quantity decreases.
14
Price per quart
Exhibit 10a: Effects of a Price Floor
and Price Ceiling (Price Floor for Milk)
S
Surplus
$1.00
0
The Market System
D
14
24
Millions of quarts per month
15
Exhibit 10b: Effects of a Price Floor
and Price Ceiling (Price Ceiling for Rent)
Monthly rental price
S
$600
$400
Shortage
0
The Market System
D
40 50 60
Thousands of rental units per month
16