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Demand / Supply Analysis

S&N, Ch3.
Mw, Ch. 4, 6
Sr, pp. 77-84, Ch,
5
Markets and Competition
Demand
The Demand Curve

Price The demand curve slopes


downward, demonstrating
that consumers are willing
to buy more at a lower price
as the product becomes
relatively cheaper.

P2

P1

Q2 Q1 Quantity
Factors affecting demand
The Demand Curve
A Change in Demand Versus a Change in
Quantity Demanded
Change in price of a good or service
leads to

Change in quantity demanded


(Movement along the curve).

Change in income, preferences, or


prices of other goods or services
leads to

Change in demand
(Shift of curve).
Demand for ice cream

Pr
 ic Ice cream demand curve shifts
e to the right as the temperature
rises

 T = 30°C

T = 25°C T = 28°C

Quantity
Supply
SUPPLY
The Supply Curve

Price S

P2
The supply curve slopes
upward, demonstrating that
P1
at higher prices firms
will increase output

Q1 Q2 Quantity
Factors affecting supply
A Change in Supply Versus
a Change in Quantity Supplied
Change in price of a good or service
leads to

Change in quantity supplied


(Movement along the curve).

Change in costs, input prices, technology, or prices of related goods and


services
leads to

Change in supply
(Shift of curve).
Equilibrium of supply and demand

Pric

 Supply
e

Surplus
 P2

PE Equilibrium
 point

P1
Shortage Demand

QE Quantity
Equilibrium of supply and demand
Equilibrium of supply and demand
The Market Equilibrium

Equilibrium
Condition

17
Price ceilings and price floor

rice can be charged on a product. For a price ceiling to be e

a price can be charged for a product. In order for a price fl


Price ceilings

P

D
 S
Surplus Price Floor
Pf


Pe E


Pc Price ceiling
Shortage

Q
Price ceilings
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