Supply and Demand

Miller UN1105
Why do brown eggs cost more than white eggs?

2
Markets
The market price is the price at which buyers
and sellers conduct transactions.

In a perfectly competitive market every buyer

pays and every seller charges the same market price,
no buyer or seller is individually big enough to
influence that market price, and all sellers sell an
identical good or service.

3
How much are you willing to pay?

4
Concepts for demand
Quantity Demanded:
The amount of a good that buyers are willing to
purchase at a given price.

Demand Schedule:
A table that reports the quantity demanded at
different prices, holding all else equal.

Demand Curve:
Plots the quantity demanded at different prices. 5
Demand for Snickers bars

Demand Curve for Snickers Bars

$1.50 Demand Schedule
$1.25 Quantity
$1.00 Price Demanded
$0.25 20
Price

$0.75
$0.50 15
$0.50
$0.75 10
$0.25
$1.00 5
$0.00 $1.25 3
0 5 10 15 20 25
Quantity $1.50 1

6
Market demand curve
The sum of the individual demand curves of all
potential buyers. The market demand curve plots
the relationship between the total quantity
demanded and the market price, holding all else
equal.

7
Market demand

8
Recall your willingness to pay for an Snickers?

What if there was a vending machine right outside

class offering a variety of candy bars all for $0.25?

What factors could affect individual demand for a

good? What about market demand?

9
Shifts of the demand curve
Some factors that, when changed, may shift the
demand curve:

1. tastes and preferences

2. income and wealth

3. availability and prices of related goods

4. number and scale of buyers

5. buyers’ expectations about the future

10
 Demand Schedule
Demand Curve for Snickers Bars Quantity
$1.50
Price Demanded
$1.25
$0.25 20
$1.00
$0.50 15
Price

$0.75
$0.75 10
$0.50
$1.00 5
$0.25
$1.25 3
$0.00
0 5 10 15 20 25 $1.50 1
Quantity

Demand Schedule
Demand Curve for Snickers Bars Quantity
$1.50
Price Demanded
$1.25
$0.25 8
$1.00
$0.50 6
Price

$0.75
$0.75 4
$0.50
$1.00 2
$0.25
$1.25 1
$0.00
0 5 10 15 20 25 $1.50 0
Quantity

11
What if I told you that class today will be 5 hours
long and you won’t be allowed to leave the room
for the entire time?

12
 Demand Curve for Snickers Bars
$1.50

$1.25

$1.00
Price

$0.75

$0.50

$0.25

$0.00
0 5 10 15 20 25 30 35
Quantity

13
Shifts of the demand curve vs.
movement along the demand curve

14
How much more gasoline would you buy if prices
were lower?

15
Quantity of gasoline demanded in
different countries

16
How much would you have to be paid to sell your
phone, right now?

17
Concepts for supply
Quantity Supplied:
The amount of a good that sellers are willing to
sell at a given price.
Supply Schedule:
A table that reports the quantity supplied at
different prices.
Supply Curve:
Plots the quantity supplied at different prices.
18
 Supply Curve for Phones Supply Schedule
$400
Quantity
$325
Price Supplied
$25 5
$250 $100 10
$175 15
Price

$175 $250 20
$325 25
$100 $400 30

$25
0 5 10 15 20 25 30 35
Quantity

19
Why are more of you willing to sell your phone at
the higher the price?

Why is the price not the same for everybody?

20
Market supply curve
Plots the relationship between the total quantity
supplied and the market price, holding all else
equal.

21
Market supply for phones

22
Now suppose that, along with the buyback, I was
also was giving away iPhone 8s for free?

What things may increase or decrease supply?

23
Things that may shift the supply curve
Some factors that, when changed, may shift the
supply curve:
1. input prices
2. technology
3. number and scale of sellers
4. sellers’ expectations about the future

24
 Supply Curve for Smartphones
$400

$325

$250
Price

$175

$100

$25
0 5 10 15 20 25 30 35
Quantity

25
For supply of oil:

What if a new technology made it easier to access

previously oil reserves (e.g. fracking)?

Would highly efficient, low cost suppliers require

more or less for their oil to participate in the
market?

26
Shifts of the supply curve versus
movement along the supply curve

27
Demand and supply together:
equilibrium

28
Excess supply

29
Excess demand

30
Leftward shift of the supply curve

31
A rightward shift of the supply curve

32
So, why do brown

eggs cost more than

white eggs?

33
Demand theory:

Brown eggs are

healthier

34
Supply theory:

Brown eggs are

more expensive to
produce

35
Why does the price of roses increase right before
Valentine’s Day?

36
Change in demand for roses

37
Why doesn’t the price of beer increase right before
Super Bowl Sunday?

38
Changes in markets for roses and beer

39