3 - 1Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
Individual Markets
Demand & Supply
3C H A P T E R
3 - 2Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
MARKETS DEFINED
MARKETS
POTENTIALSELLERS
POTENTIALBUYERS
3 - 3Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
$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, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
• Diminishing Marginal Utility
LAW OF DEMAND
3 - 6Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
3 - 7Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
• Substitution Effect
3 - 8Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
• Diminishing Marginal Utility
• Income Effect
• Substitution Effect
LAW OF DEMAND
• Demand Curve
• Individual and Market Demand
3 - 9Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
3 - 10Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
DETERMINANTS OF DEMAND
• Tastes and Preferences• Number of Buyers• Incomes
– Normal (Superior) & Inferior Goods
• Prices of Related Goods– Substitutes & Complements– Unrelated Goods
• Expectations
Understanding Shifts of the Understanding Shifts of the Demand CurveDemand Curve
• Increase = right, Decrease = left
• M.E.R.I.T. shifts demand
market size (number of consumers)
expectations
related prices (complements, substitutes)
income (normal, inferior)
tastes
3 - 12Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 13Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 14Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 15Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 16Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 17Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 18Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 19Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 20Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 21Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 22Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SUPPLY DEFINED
SUPPLY SCHEDULESUPPLY SCHEDULE
$12345
P QS
CORN
Various AmountsVarious Amounts 520355060
3 - 23Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
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 - 24Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
LAW OF SUPPLY• As Price Rises…
…Quantity Supplied Rises
• As Price Falls…
…Quantity Supplied Falls
A direct relationship exists between price and quantity supplied
3 - 25Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
DETERMINANTS OF SUPPLY (CERTTS)
• Costs of Resources
• Price Expectations
• Regulations
• Technology
• Taxes & Subsidies
• Number of Sellers
3 - 26Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
5
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
3 - 27Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
3 - 28Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
35
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
3 - 29Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
3 - 30Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
3 - 31Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
Connect the Points
GRAPHING SUPPLY
3 - 32Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
What if
Supply
Increases?
GRAPHING SUPPLY
3 - 33Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
Price of Corn
Quantity of Corn
$54321
60503520 5
P QS
CORN
8070604530
S’Increase
in
Supply
Increase
in Quantity
Supplied
GRAPHING SUPPLY
3 - 34Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
What if
Supply
Decreases?
GRAPHING SUPPLY
3 - 35Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
S’
453020 0 --
Decrease
in
Supply
Decrease
in Quantity
Supplied
GRAPHING SUPPLY
3 - 36Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Combining
with
Demand
GRAPHING SUPPLY
3 - 37Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
MARKET DEMAND & SUPPLY
$54321
1020355580
$54321
60503520 5
x200
B
U
Y
E
R
S
P QD
BUSHELS
OF CORNMARKET
DEMAND
2,0004,0007,000
11,00016,000
x200
S
E
L
L
E
R
S
12,00010,000
7,0004,0001,000
P QS
BUSHELS
OF CORNMARKET
SUPPLY
EQUILIBRIUMGraphically…
3 - 38Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
7
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
Market Clearing Equilibrium
MARKET DEMAND & SUPPLY
3 - 39Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
7
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKETSurplusAt a $4 price
more is being
supplied than
demanded
MARKET DEMAND & SUPPLY
3 - 40Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
117
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
At a $2 price
more is being
demanded than
supplied
Shortage
MARKET DEMAND & SUPPLY
3 - 41Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
MARKET EQUILIBRIUM
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity Demanded
• Changes in Supply
• Changes in Quantity Supplied
3 - 42Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
MARKET EQUILIBRIUM
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity Demanded
• Changes in Supply
• Changes in Quantity Supplied
Complex Cases
Multiple Shifts
3 - 43Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity Demanded
• Changes in Supply
• Changes in Quantity Supplied
Chapter
Conclusion
MARKET EQUILIBRIUM
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 prices
Copyright McGraw-Hill/Irwin, 2002 BACK END
3 - 45Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndShow
Next:
Chapter 4