Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last

Word
Key Terms End Show 3-1

3
Demand, Supply, and Market Equilibrium
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Chapter Objectives
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-2

Demand Defined and What Affects It Supply Defined and What Affects It How Supply & Demand Together Determine Market Equilibrium How Changes in Supply and Demand Affect Equilibrium Prices and Quantities Government-Set Prices and their Implications for Surpluses & Shortages
Copyright 2008 The McGraw-Hill Companies

Demand
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-3

Demand Defined Demand Schedule Law of Demand

3.1

3.2

Diminishing Marginal Utility Income Effect Substitution Effect

3.3

Demand Curve Market Demand

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3.4

Individual Demand
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-4
Copyright 2008 The McGraw-Hill Companies

P $5

Qd 10

Price (per bushel)

Individual Demand

4
3 2 1

20
35 55 80

D
10 20 30 40 50 60 70 80

Quantity Demanded (bushels per week)

Individual Demand
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-5

Determinants of Demand Tastes Number of Buyers Income

Normal Goods Inferior Goods

Price of Related Goods

Substitute Good Complementary Good Unrelated Goods

Consumer Expectations
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Individual Demand
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-6
Copyright 2008 The McGraw-Hill Companies

Demand Can Increase or Decrease

P
6

Price (per bushel)

Individual Demand
P $5 Qd 10

Increase in Demand

4
3 2 1

20
35 55 80

D2

Decrease in Demand
2 4 6 8 10 12

D3
14 16

D1
18 Q

Quantity Demanded (bushels per week)

Individual Demand
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-7
Copyright 2008 The McGraw-Hill Companies

Demand Can Increase or Decrease

P
6

P $5

Qd 10

Price (per bushel)

Individual Demand

An Increase in Demand Means a Movement of the Line

A Movement Between Any Two Points on a Demand Curve is Called a Change in Quantity Demanded
D2

4
3 2 1

20
35 55 80

Decrease in Demand
2 4 6 8 10 12

D3
14 16

D1
18 Q

Quantity Demanded (bushels per week)

Supply
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-8

Supply Defined Supply Schedule Law of Supply

Revenue Implications Marginal Cost

Supply Curve Market Supply

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Individual Supply
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-9
Copyright 2008 The McGraw-Hill Companies

P $5

Qs 60

Price (per bushel)

Individual Supply

S1

4
3 2 1

50
35 20 5

10

20

30

40

50

60

70

Quantity Supplied (bushels per week)

Individual Supply
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-10
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Determinants of Supply

Resource Prices Technology Taxes and Subsidies Prices of Other Goods Producer Expectations Number of Sellers

Individual Supply
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-11
Copyright 2008 The McGraw-Hill Companies

Supply Can Increase or Decrease

P
6

P $5

Qs 60

Price (per bushel)

Individual Supply

S3 S1 S2

4
3 2 1

50
35 20 5

10

12

14

Quantity Supplied (bushels per week)

Individual Supply
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-12
Copyright 2008 The McGraw-Hill Companies

Supply Can Increase or Decrease

P
6

P $5

Qs 60

Price (per bushel)

Individual Supply

A Movement Between Any Two Points on a Supply Curve is Called a Change in Quantity Supplied

S3 S1 S2

4
3 2 1

50
35 20 5

An Increase in Supply Means a Movement of the Line

2 4 6 8 10 12 14

Quantity Supplied (bushels per week)

Market Equilibrium
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-13

Equilibrium Price

3.1

Equilibrium Quantity
Surplus Shortage

Rationing Function of Prices

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Market Equilibrium
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-14
Copyright 2008 The McGraw-Hill Companies

200 Buyers & 200 Sellers

Market Demand 200 Buyers
6
5

P
$5 4 3 2 1

Qd
2,000 4,000 7,000 11,000 16,000 Price (per bushel)

6,000 Bushel Surplus

S $4 Price Floor

Market Supply 200 Sellers

P
$5 4 3

Qs
12,000 10,000 7,000 4,000 1,000

4 3 2 1 0

$2 Price Ceiling 2
1

7,000 Bushel Shortage

2 4 6 7 8 10 12 14 16

D
18

Bushels of Corn (thousands per week)

Market Equilibrium
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-15

Changes in Demand Changes in Supply Changes in Equilibrium Efficient Allocation

Productive Efficiency Allocative Efficiency
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Market Equilibrium
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-16

Copyright 2008 The McGraw-Hill Companies

Supply Increase; ? Demand Decrease Supply Decrease; ? Demand Increase Supply Increase; ? Demand Increase Supply Decrease; ? Demand Decrease

Price Quantity

Government-Set Prices
Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-17

Price Ceilings on Gasoline Rationing Problem Black Markets Rent Controls Price Floors on Wheat Optimal Allocation of Resources
Copyright 2008 The McGraw-Hill Companies

3.2

A Legal Market for Human Organs

Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-18

Waiting List for Transplants Demand for Organs Vertical Supply of Organs Incentive Role of Market and UpSloping Supply Increases Quantity Decreases Price Moral Objections Increase the Cost of Health Care Better to Legalize and Regulate?

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A Legal Market for Human Organs

Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-19

S1

Supply With Price Incentive S2 Supply of Organs Demand for Organs Shortage at Zero Price Q 1 Q3

P1 At Price P1 the Shortage is Reduced By Q1 Q2

P0
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D1 Q1 Q2 Q3 Q

Key Terms Page

Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-20

demand demand schedule law of demand diminishing marginal utility income effect substitution effect demand curve determinants of demand normal goods inferior goods substitute good complementary good change in demand change in quantity demanded

supply supply schedule law of supply supply curve determinants of supply change in supply change in quantity supplied equilibrium price equilibrium quantity surplus shortage price ceiling price floor

Copyright 2008 The McGraw-Hill Companies

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Demand Individual Demand Determinants of Demand Supply Individual Supply Determinants of Supply Market Equilibrium GovernmentSet Prices Last Word
Key Terms End Show 3-21
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The U.S. Economy: Public and Private Sectors