Mr. Rey Belen

The Quantity Demanded of any good is the amount of the good that buyers are willing and able to purchase.

Law of Demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal.

Variable A change in this variable

Own Price …causes a movement along the D curve # of buyers …shifts the D curve(Normal vs. Inferior) Income …shifts the D curve Price of related goods …shifts the D curve(Substitutes vs. Complements) Tastes …shifts the D curve Expectations …shifts the D curve

The Quantity Supplied of any goods is the amount that sellers are willing and able to sell.

Law of Supply: the claim that the quantity supplied of a good rises when the price of the goods rises, other things equal.

Variable A change in this variable

Own Price …causes a movement along the S curve Input Prices …shifts the S curve(minimum wage increase) Technology …shifts the S curve # of Sellers …shifts the S curve Expectations …shifts the D curve

PRICE

QUANTITY

D

S

Equilibrium:P has reached the level where quantity supplied equals quantity demanded

PRICE

QUANTITY

D S

When quantity supplied is greater than quantity demanded

SURPLUS

PRICE

QUANTITY

DS

When quantity demanded is greater than quantity supplied

SHORTAGE

To determine the effects of any event,

1.Decide whether event shift S curve, D curve, or both.

2.Decide in which direction curve shifts.3.Use supply-demand diagram to see

how the shift changes eq’m P and Q.

PRICE OF DIESEL CARS

QUANTITY OF DIESEL CARS

D1

S1

Analyze the effect of:-Increase in price of gas-New technology reduces cost of producing diesel cars

P1

Q1

D1

S1 Event to be analyze:-Increase in price of gas

P1

Q1

Step 1:D curve shifts to the right

The shift causes an increase in price and quantity of diesel cars

P2

D2

Q2

PRICE OF DIESEL CARS

QUANTITY OF DIESEL CARS

D1

S1Event to be analyze:-New technology reduces cost of producing diesel cars.

P1

Q1

Step 1:S curve shifts to the right

The shift causes price to fall and quantity to rise

P2

Q2

S2

PRICE OF DIESEL CARS

QUANTITY OF DIESEL CARS

D1

S1

P1

Q1

P2

D2

Q2

S2

PRICE OF DIESEL CARS

QUANTITY OF DIESEL CARS

D1

S1

P1

Q1

P2

D2

Q2

S2

PRICE OF DIESEL CARS

QUANTITY OF DIESEL CARS

No Change in Supply

An Increase in Supply

A Decrease in Supply

No Change in Demand

P sameQ same

P downQ up

P upQ down

An Increase in Demand

P upQ up

P ambiguousQ up

P upQ ambiguous

A Decrease in Demand

P downQ down

P downQ ambiguous

P ambiguousQ down

PRICE

QUANTITY

D1

S1

P1

Q1