Supply and Demand

Chapter 3

Competitive Market

Lots of buyers and sellers dealing in identical goods.

Catherine’s Demand Curve

Market Demand as the Sum of Individual Demands

Shifts in the Demand Curve

Shift Factors for Demand

1. Income.

2. Prices of related goods (substitutes and complements).

3. Tastes/Preferences.

4. Expectations.

5. Number of buyers.

Shifts in the Demand Curve versus Movements along the Demand Curve

Market Supply as the Sum of Individual Supplies

Market Supply as the Sum of Individual Supplies

Shifts in the Supply Curve

Shift Factors for Supply

1. Input prices.

2. Technology.

3. Weather.

4. Expectations.

5. Number of sellers.

The Equilibrium of Supply and Demand

Markets Not in Equilibrium

A Three-Step Program for Analyzing Changes in Equilibrium

1. Decide whether the event shifts the supply or demand curve (or perhaps both).

2. Decide in which direction the curve shifts.

3. Use the supply-and-demand to see how the shift changes the equilibrium price and quantity.

How an Increase in Demand Affects the Equilibrium

How a Decrease in Supply Affects the Equilibrium

A Shift in Both Supply and Demand