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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
3 - 23Copyright 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
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 - 24Copyright 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
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 - 25Copyright 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
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 - 26Copyright 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
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, 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
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, 2005
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
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
Connect the Points
GRAPHING SUPPLY
3 - 29Copyright 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
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 - 30Copyright 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
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 - 31Copyright 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
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 - 32Copyright 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
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 - 33Copyright 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 SUPPLY
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers
3 - 34Copyright 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 SUPPLY
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers
Combining
with
Demand
3 - 35Copyright 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
MARKET DEMAND & SUPPLY
$54321
1020355580
$54321
60503520 5
200
B
U
Y
E
R
S
P QD
BUSHELS
OF CORNMARKET
DEMAND
2,0004,0007,000
11,00016,000
200
S
E
L
L
E
R
S
12,00010,000
7,0004,0001,000
P QS
BUSHELS
OF CORNMARKET
SUPPLY
EQUILIBRIUMGraphically…
x x
3 - 36Copyright 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
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 - 37Copyright 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
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 - 38Copyright 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
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 - 39Copyright 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
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
Shortage
MARKET DEMAND & SUPPLY Surplus
3 - 40Copyright 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
MARKET EQUILIBRIUM
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity Demanded
• Changes in Supply
• Changes in Quantity Supplied
3 - 41Copyright 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
Complex Cases
• Supply Increases; Demand Decreases–Prices Decrease–Quantity Indeterminate
• Supply Decreases; Demand Increases–Price Increases–Quantity Indeterminate
Multiple Shifts…
3 - 42Copyright 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
Complex Cases
• Supply Increases; Demand Increases–Prices Indeterminate–Quantity Increases
• Supply Decreases; Demand Decreases–Price Indeterminate–Quantity Decreases
Multiple Shifts…
3 - 43Copyright 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
Government Set Prices• Price Ceilings
–Shortages–Rationing Problem–Black Markets–Rent Controls
• Price Floors–Surpluses
3 - 44Copyright 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
Government Set Prices• Price Ceilings
–Shortages–Rationing Problem–Black Markets–Rent Controls
• Price Floors–Surpluses
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
Copyright McGraw-Hill/Irwin, 2005 BACK END
3 - 46Copyright 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
Next:
Chapter 4