Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 1
Managerial Economics in a
Global Economy, 5th Edition
by
Dominick Salvatore
Chapter 1: Appendix
The Basics of Demand,
Supply, and Equilibrium
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 2
Law of Demand
A decrease in the price of a good, all
other things held constant, will cause an
increase in the quantity demanded of
the good.
An increase in the price of a good, all
other things held constant, will cause a
decrease in the quantity demanded of
the good.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 3
Change in Quantity
Demanded
Quantity
Price
P
0

Q
0

P
1

Q
1

An increase in price
causes a decrease in
quantity demanded.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 4
Change in Quantity
Demanded
Quantity
Price
P
0

Q
0

P
1

Q
1

A decrease in price
causes an increase in
quantity demanded.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 5
Changes in Demand
Change in Buyers Tastes
Change in Buyers Incomes
Normal Goods
Inferior Goods
Change in the Number of Buyers
Change in the Price of Related Goods
Substitute Goods
Complementary Goods
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 6
Change in Demand
Quantity
Price
P
0

Q
0
Q
1

An increase in demand
refers to a rightward shift
in the market demand
curve.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7
Change in Demand
Quantity
Price
P
0

Q
1
Q
0

A decrease in demand
refers to a leftward shift
in the market demand
curve.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 8
Law of Supply
A decrease in the price of a good, all
other things held constant, will cause a
decrease in the quantity supplied of the
good.
An increase in the price of a good, all
other things held constant, will cause an
increase in the quantity supplied of the
good.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 9
Change in Quantity Supplied
Quantity
Price
P
1

Q
1

P
0

Q
0

A decrease in price
causes a decrease in
quantity supplied.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 10
Change in Quantity Supplied
Quantity
Price
P
0

Q
0

P
1

Q
1

An increase in price
causes an increase in
quantity supplied.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 11
Changes in Supply
Change in Production Technology
Change in Input Prices
Change in the Number of Sellers
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 12
Change in Supply
Quantity
Price
P
0

Q
1
Q
0

An increase in supply
refers to a rightward shift
in the market supply curve.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 13
Change in Supply
Quantity
Price
P
0

Q
1
Q
0

A decrease in supply refers
to a leftward shift in the
market supply curve.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 14
Market Equilibrium
Market equilibrium is determined at the
intersection of the market demand curve
and the market supply curve.
The equilibrium price causes quantity
demanded to be equal to quantity
supplied.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 15
Market Equilibrium
Quantity
Price
P
Q
D
S
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 16
Market Equilibrium
Quantity
Price
P
0

Q
0

D
0

S
0

Q
1

P
1

D
1

An increase in demand
will cause the market
equilibrium price and
quantity to increase.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 17
Market Equilibrium
Quantity
Price
P
1

Q
1

S
0

Q
0

P
0

D
0
D
1

A decrease in demand
will cause the market
equilibrium price and
quantity to decrease.
Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 18
Market Equilibrium
Quantity
Price
P
0

Q
0

D
0

S
0

Q
1

P
1

An increase
in supply
will cause
the market
equilibrium
price to
decrease and
quantity to
increase.
S
1

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 19
Market Equilibrium
Quantity
Price
P
1

Q
1

D
0

Q
0

P
0

A decrease in
supply will
cause the
market
equilibrium
price to
increase and
quantity to
decrease.
S
1
S
0