3 - 1 Copyright McGraw-Hill/Irwin, 2005 Markets Demand Defined Demand Graphed Changes in Dem and Supply Defined Supply Graphed Changes in Sup ply Equilibrium Surpluses Shortages Key Terms Previo us Slide Next Slid e End End Show Show Individual Markets: Demand & Supply 3 C H A P T E R
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3 - 1Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Individual Markets:
Demand & Supply
3C H A P T E R
3 - 2Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARKETS DEFINED
MARKETS
POTENTIALSELLERS
POTENTIALBUYERS
3 - 3Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$54321
DEMAND DEFINED
DEMAND SCHEDULEDEMAND SCHEDULE
Various AmountsVarious Amounts
A Series of Possible PricesA Series of Possible Prices
…a specified time period…other things being equal
P QD
1020355580
3 - 4Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
LAW OF DEMAND
• As Price Falls…
…Quantity Demanded Rises
• As Price Rises…
…Quantity Demanded Falls
An inverse relationship exists between price and quantity demanded
3 - 5Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
• Diminishing Marginal Utility
LAW OF DEMAND
3 - 6Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
3 - 7Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
• Substitution Effect
3 - 8Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
• Diminishing Marginal Utility
• Income Effect
• Substitution Effect
LAW OF DEMAND
• Demand Curve
• Individual and Market Demand
3 - 9Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
GRAPHING DEMANDP
Qo
$5
4
3
2
1
P QD
$54321
1020355580
Price of Corn
Quantity of Corn
CORN Plot the Points
10 20 30 40 50 60 70 80
3 - 10Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
55
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
Price of Corn
Quantity of Corn
CORN Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND
3 - 11Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
35
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
Price of Corn
Quantity of Corn
CORN Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND
3 - 12Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
Price of Corn
Quantity of Corn
CORN Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND
3 - 13Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
Price of Corn
Quantity of Corn
CORN Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND
3 - 14Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
D
Price of Corn
Quantity of Corn
CORN Connect the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND
3 - 15Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
What if
Demand
Increases?
GRAPHING DEMAND
3 - 16Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
D’
Increase
in
Demand
Increase
in Quantity
Demanded1020355580
30406080 +
GRAPHING DEMAND
3 - 17Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
What if
Demand
Decreases?
GRAPHING DEMAND
3 - 18Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Qo
$5
4
3
2
1
P QD
$54321
1020355580
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
-- 10204060
D’
Decrease
in
Demand
Decrease
in Quantity
Demanded
GRAPHING DEMAND
3 - 19Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
DETERMINANTS OF DEMAND
• Tastes• Number of Buyers• Income
– Normal (Superior) & Inferior Goods
• Prices of Related Goods– Substitutes & Complements– Unrelated Goods
• Expectations
3 - 20Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
SUPPLY DEFINED
SUPPLY SCHEDULESUPPLY SCHEDULE
$12345
P QS
CORN
Various AmountsVarious Amounts 520355060
3 - 21Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
SUPPLY DEFINED
SUPPLY SCHEDULESUPPLY SCHEDULE
$12345
P QS
CORN
Various AmountsVarious Amounts
A Series of Possible PricesA Series of Possible Prices
…a specified time period…other things being equal
520355060
3 - 22Copyright McGraw-Hill/Irwin, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
LAW OF SUPPLY
• As Price Rises…
…Quantity Supplied Rises
• As Price Falls…
…Quantity Supplied Falls
A direct relationship exists between price and quantity supplied
Key Termsmarketdemanddemand schedulelaw of demanddiminishing marginal utilityincome effectsubstitution effectdemand curvedeterminants of demandnormal goods inferior goodssubstitute goodcomplementary good change in demand
change in quantity demandedsupplysupply schedulelaw of supplysupply curvedeterminants of supplychange in supplychange in quantity suppliedsurplusshortageequilibrium priceequilibrium quantityrationing function of pricesprice ceiling and floor