Chap03

Individual Markets: Demand & Supply 3 C H A P T E R

MARKETS DEFINED MARKETS POTENTIAL SELLERS POTENTIAL BUYERS

DEMAND DEFINED $5 4 3 2 1 DEMAND SCHEDULE Various Amounts A Series of Possible Prices … a specified time period … other things being equal 10 20 35 55 80 P Q D

LAW OF DEMAND ,[object Object],[object Object],[object Object],[object Object],An inverse relationship exists between price and quantity demanded

[object Object],LAW OF DEMAND ,[object Object]

[object Object],LAW OF DEMAND ,[object Object],[object Object]

[object Object],[object Object],[object Object],LAW OF DEMAND ,[object Object],[object Object]

GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

GRAPHING DEMAND 55 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

GRAPHING DEMAND 35 P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 P Q D

GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN Connect the Points 10 20 30 40 50 60 70 80 P Q D

GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Increases? P Q D

GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 D’ Increase in Demand Increase in Quantity Demanded 10 20 35 55 80 30 40 60 80 + P Q D

GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if Demand Decreases? P Q D

GRAPHING DEMAND P Q o $5 4 3 2 1 $5 4 3 2 1 10 20 35 55 80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 -- 10 20 40 60 D’ Decrease in Demand Decrease in Quantity Demanded P Q D

DETERMINANTS OF DEMAND ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

SUPPLY DEFINED SUPPLY SCHEDULE $1 2 3 4 5 CORN Various Amounts 5 20 35 50 60 P Q S

SUPPLY DEFINED SUPPLY SCHEDULE $1 2 3 4 5 CORN Various Amounts A Series of Possible Prices … a specified time period … other things being equal 5 20 35 50 60 P Q S

LAW OF SUPPLY ,[object Object],[object Object],[object Object],[object Object],A direct relationship exists between price and quantity supplied

GRAPHING SUPPLY 5 P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S

GRAPHING SUPPLY P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S

GRAPHING SUPPLY 35 P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Plot the Points P Q S

GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN Connect the Points P Q S

GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN What if Supply Increases? P Q S

GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 Price of Corn Quantity of Corn $5 4 3 2 1 60 50 35 20 5 CORN 80 70 60 45 30 S’ Increase in Supply Increase in Quantity Supplied P Q S

GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN What if Supply Decreases? P Q S

GRAPHING SUPPLY S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Price of Corn Quantity of Corn CORN S’ 45 30 20 0 -- Decrease in Supply Decrease in Quantity Supplied P Q S

DETERMINANTS OF SUPPLY ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

DETERMINANTS OF SUPPLY ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Combining with Demand

MARKET DEMAND & SUPPLY $5 4 3 2 1 10 20 35 55 80 $5 4 3 2 1 60 50 35 20 5 200 B U Y E R S MARKET DEMAND 2,000 4,000 7,000 11,000 16,000 200 S E L L E R S 12,000 10,000 7,000 4,000 1,000 MARKET SUPPLY EQUILIBRIUM Graphically… x x P Q D BUSHELS OF CORN P Q S BUSHELS OF CORN

MARKET DEMAND & SUPPLY 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET Market Clearing Equilibrium P Q D P Q S

MARKET DEMAND & SUPPLY 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET Surplus At a $4 price more is being supplied than demanded P Q D P Q S

MARKET DEMAND & SUPPLY 11 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET At a $2 price more is being demanded than supplied Shortage P Q D P Q S

MARKET DEMAND & SUPPLY 11 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of Corn Quantity of Corn CORN MARKET CORN MARKET Shortage Surplus P Q D P Q S

MARKET EQUILIBRIUM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Complex Cases ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Multiple Shifts…

Government Set Prices ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Key Terms ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Copyright McGraw-Hill/Irwin, 2005 BACK END

Next: The Market System Chapter 4

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