54321

P QD

1020355580

A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices.

What is Demand?

Buyers determine demand

P

Qo

5

4

3

2

1

P QD

54321

1020355580

Price of quantity

Quantity

Plot the Points

10 20 30 40 50 60 70 80

Graphing Demand

55 Qo

5

4

3

2

1

P QD

54321

1020355580

Quantity

Plot the Points

10 20 30 40 50 60 70 80

Price of quantity

Graphing Demand P

35

P

Qo

5

4

3

2

1

P QD

54321

1020355580

Quantity

Plot the Points

10 20 30 40 50 60 70 80

Price of quantity

Graphing Demand

P

Qo

5

4

3

2

1

P QD

54321

1020355580

Price of quantity

Quantity

Plot the Points

10 20 30 40 50 60 70 80

Price of quantity Graphing Demand

P

Qo

5

4

3

2

1

P QD

54321

1020355580

Price of quantity

Quantity

Plot the Points

10 20 30 40 50 60 70 80

Graphing Demand

P

Qo

5

4

3

2

1

P QD

54321

1020355580

D

Price of quantity

Quantity

Connect the Points

10 20 30 40 50 60 70 80

Graphing Demand

• As Price Falls…

…Quantity Demanded Rises

• As Price Rises…

…Quantity Demanded Falls

An inverse relationship exists between price and quantity demanded

Law of Demand

P

Qo

5

4

3

2

1

P QD

54321

1020355580

D

Quantity

10 20 30 40 50 60 70 80

Price of quantity

Graphing Demand

What if

Demand

Increases?

P

Qo

5

4

3

2

1

P QD

54321

D

Price of quantity

Quantity

10 20 30 40 50 60 70 80

D’

Increase

in

Demand

Increase

In quantity

demanded

(extension in demand)10

20355580

30406080 +

Graphing Demand

P2

P1

P

Qo

5

4

3

2

1

P QD

54321

1020355580

D

Price of qauntity

Quantity

10 20 30 40 50 60 70 80

What if

Demand

Decreases?

Graphing Demand

P

Qo

5

4

3

2

1

P QD

54321

1020355580

D

Price of quantity

Quantity

10 20 30 40 50 60 70 80

-- 10204060

D’

Decrease

in

Demand

Decrease in quantity

demanded

(contraction in demand)

Graphing Demand

P1

P2

• Product’s own price• Income of Buyers• Prices of Related Goods• Tastes• Expectations• Number of Buyers

Determinants of demand

Determinants of demand

VARIABLE A CHANGE IN THIS VARIABLE

PRICE Representation a movement along the demand curve

INCOME Shift the demand curve

TASTES Shift the demand curve

PRICE OF OTHER GOODS Shift the demand curve

NUMBER OF BUYERS Shift the demand curve

EXPECTATION Shifts the demand curve

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P QS

Supply is a schedule or a curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices.

Supply is a schedule or a curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices.

520355060

What is Supply?

5

P

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Price of a quantity

Quantity

Plot the Points

Graphing Supply?

P

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Quantity

Price of a quantity

Graphing Supply?

35

P

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Quantity

Price of a quantity

Graphing Supply?

P

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Quantity

Price of a quantity

Graphing Supply?

P

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Quantity

Price of a quantity

Graphing Supply?

SP

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Quantity

Connect the Points

Price of a quantity

Graphing Supply?

• As Price Rises…

…Quantity Supplied Rises

• As Price Falls…

…Quantity Supplied Falls

A direct relationship exists between price and quantity supplied

Law of Supply?

Price of quantity

SP

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Quantity

What if

Supply

Increases?

Law of Supply?

SP

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

Price of quantity

Quantity

54321

60503520 5

P QS

8070604530

S’Increase

in

Supply

Increase

in Quantity

Supplied

Law of Supply?

P1

P2

SP

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Quantity

What if

Supply

Decreases?

Price of a quantity

Law of Supply?

SP

Qo

5

4

3

2

1

10 20 30 40 50 60 70 80

54321

60503520 5

P QS

Quantity

S’

453020 0 --

Decrease

in

Supply

Decrease

in Quantity

Supplied

Price of a quantity

Law of Supply?

P2

P1

• Prices of the good / service

• Technology

• Taxes & Subsidies

• Prices of Other Goods

• Number of Sellers

Determinants of Supply?

Determinants of Supply?

VARIABLE A CHANGE IN THIS VARIABLE

PRICE Representation a movement along the supply curve

TECHNOLOGY Shift the supply curve

TASTES & SUBSIDIES Shift the supply curve

PRICE OF OTHER GOODS Shift the supply curve

NUMBER OF SELLERS Shift the supply curve

EXPECTATION Shifts the supply curve

EQUILIBRIUMEQUILIBRIUM

Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded. quantity supplied = quantity demanded

(qs = qd)

54321

1020355580

54321

60503520 5

200

B

U

Y

E

R

S

P QD

MARKET

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

MARKET

SUPPLY

EQUILIBRIUM

x x

EQUILIBRIUMEQUILIBRIUM

7

S

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

Quantity

EQUILIBRIUM

EQUILIBRIUM

Surplus

When price > equilibrium price, then quantity supplied > quantity demanded.

•There is excess supply or a surplus. •Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

Shortage

When price < equilibrium price, then quantity demanded > the quantity supplied.

•There is excess demand or a shortage. •Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

EQUILIBRIUMEQUILIBRIUM

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 quantity

Quantity

SurplusAt a “P4” price

more is being

supplied than

demanded

EQUILIBRIUM- surplusEQUILIBRIUM- surplus

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 quantity

Quantity

At a “P2” price

more is being

demanded than

supplied

Shortage

EQUILIBRIUM- shortageEQUILIBRIUM- shortage

QUESTIONSQUESTIONS

?

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