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Principles of Economics,
9e
; ; By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
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CHAPTER 3 Demand, Supply, and Market Equilibrium
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PART I INTRODUCTION TO ECONOMICS
Prepared by:
Fernando & Yvonn Quijano
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PART I INTRODUCTION TO ECONOMICS
Decision-Making Units
Input Markets and Output Markets: The
Circular Flow
Demand in Product/Output Markets
Changes in Quantity Demanded versus Changes
in Demand
Price and Quantity Demanded: The Law of
Demand
Other Determinants of Household Demand
Shift of Demand versus Movement Along the
Demand Curve
From Household Demand to Market Demand
Supply in Product/Output Markets
Price and Quantity Supplied: The Law of Supply
Other Determinants of Supply
Shift of Supply versus Movement Along the
Supply Curve
From Individual Supply to Market Supply
Market Equilibrium
Excess Demand
Excess Supply
Changes in Equilibrium
Demand and Supply in Product Markets: A
Review
Looking Ahead: Markets and the
Allocation of Resources
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Firms and Households: The Basic Decision-Making Units
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Input Markets and Output Markets: The Circular Flow
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Input Markets and Output Markets: The Circular Flow
FIGURE 3.1 The Circular Flow of
Economic Activity
Diagrams like this one show the
circular flow of economic activity,
hence the name circular flow
CHAPTER 3 Demand, Supply, and Market Equilibrium
side.
c. Both firms and households are on the demand side.
d. Both firms and households are on the supply side.
e. Neither firms nor households are part of the demand side or
the supply side.
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In the input, or factor markets, which side of the market do firms
and households occupy?
a. Firms are on the supply side and households on the demand
side.
b. Firms are on the demand side and households on the
CHAPTER 3 Demand, Supply, and Market Equilibrium
supply side.
c. Both firms and households are on the demand side.
d. Both firms and households are on the supply side.
e. Neither firms nor households are part of the demand side or
the supply side.
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Input Markets and Output Markets: The Circular Flow
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Input Markets and Output Markets: The Circular Flow
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Which of the following is supplied by households in factor markets?
a. Labor.
b. Savings.
c. Land.
d. All of the above.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Which of the following is supplied by households in factor markets?
a. Labor.
b. Savings.
c. Land.
d. All of the above.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
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Demand in Product/Output Markets
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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Fill in the blanks. It is reasonable to expect that quantity
demanded will __________ when price rises, ceteris paribus,
and that demand curves have a __________ slope.
a. rise; positive
b. rise; negative
CHAPTER 3 Demand, Supply, and Market Equilibrium
c. fall; positive
d. fall; negative
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Fill in the blanks. It is reasonable to expect that quantity
demanded will __________ when price rises, ceteris paribus,
and that demand curves have a __________ slope.
a. rise; positive
b. rise; negative
CHAPTER 3 Demand, Supply, and Market Equilibrium
c. fall; positive
d. fall; negative
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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That demand curves intersect both the price and the quantity axes
is a matter of common sense. Which of the following
explains that they intersect the price axis?
a. Time limitations and diminishing marginal utility.
b. Limited incomes and wealth.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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That demand curves intersect both the price and the quantity axes
is a matter of common sense. Which of the following
explains that they intersect the price axis?
a. Time limitations and diminishing marginal utility.
b. Limited incomes and wealth.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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Demand in Product/Output Markets
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Demand in Product/Output Markets
Expectations
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
Shift of Demand versus Movement Along a Demand Curve
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Demand in Product/Output Markets
Shift of Demand versus Movement Along a Demand Curve
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Refer to the figure below. Which move illustrates the impact of a
decrease in market price on market demand, all else the same?
a. The move from A to B.
b. The move from A to C.
c. Both moves show the same result on demand.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Refer to the figure below. Which move illustrates the impact of a
decrease in market price on market demand, all else the same?
a. The move from A to B.
b. The move from A to C.
c. Both moves show the same result on demand.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
Shift of Demand versus Movement Along a Demand Curve
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
Shift of Demand versus Movement Along a Demand Curve
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Refer to the figure below. Assume that TVs and VCRs are two
complements and that the diagram below represents the
demand for VCRs. Which move would best describe the
impact of a decrease in the price of TVs on this diagram?
a. The move from A to B.
b. The move from A to C.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Refer to the figure below. Assume that TVs and VCRs are two
complements and that the diagram below represents the
demand for VCRs. Which move would best describe the
impact of a decrease in the price of TVs on this diagram?
a. The move from A to B.
b. The move from A to C.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand in Product/Output Markets
From Household Demand To Market Demand
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Supply in Product/Output Markets
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Supply in Product/Output Markets
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Supply in Product/Output Markets
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Supply in Product/Output Markets
Quantity Supplied
Price (Per Bushel) (Bushels Per Year)
$1.50 0
1.75 10,000
2.25 20,000
3.00 30,000
4.00 45,000
5.00 45,000
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Supply in Product/Output Markets
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Supply in Product/Output Markets
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The decision of a profit-maximizing firm about what quantity of
output to supply depends on:
a. The price of the good or service.
b. The cost of producing the product.
c. The technologies that can be used to produce the product.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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The decision of a profit-maximizing firm about what quantity of
output to supply depends on:
a. The price of the good or service.
b. The cost of producing the product.
c. The technologies that can be used to produce the product.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Supply in Product/Output Markets
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Supply in Product/Output Markets
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Supply in Product/Output Markets
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Supply in Product/Output Markets
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Supply in Product/Output Markets
From Individual Supply to Market Supply
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Refer to the figure below. Which of the following moves best describes what
happens when a change in the price of soybeans affects market supply?
a. A move from A to B.
b. A move from A to C.
c. Either move from A to B or A to C.
CHAPTER 3 Demand, Supply, and Market Equilibrium
d. A move from B to C.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 54 of 69
Refer to the figure below. Which of the following moves best describes what
happens when a change in the price of soybeans affects market supply?
a. A move from A to B.
b. A move from A to C.
c. Either move from A to B or A to C.
CHAPTER 3 Demand, Supply, and Market Equilibrium
d. A move from B to C.
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Market Equilibrium
Excess Demand
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Market Equilibrium
Excess Demand
FIGURE 3.9 Excess
Demand, or Shortage
Excess Supply
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Market Equilibrium
Excess Supply
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Refer to the figure below. When market price is $1.75, which of the following
is correct?
a. There is excess supply.
b. There is a surplus.
c. Quantity demanded is greater than quantity supplied.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Refer to the figure below. When market price is $1.75, which of the following
is correct?
a. There is excess supply.
b. There is a surplus.
c. Quantity demanded is greater than quantity supplied.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Market Equilibrium
Changes In Equilibrium
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Market Equilibrium
Changes In Equilibrium
for Product X
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Which of the following situations leads to a lower equilibrium price?
a. An increase in demand, without a change in supply.
b. A decrease in supply accompanied by an increase in demand.
c. A decrease in supply, without a change in demand.
d. A decrease in demand accompanied by an increase in supply.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Which of the following situations leads to a lower equilibrium price?
a. An increase in demand, without a change in supply.
b. A decrease in supply accompanied by an increase in demand.
c. A decrease in supply, without a change in demand.
d. A decrease in demand accompanied by an increase in supply.
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Market Equilibrium
Changes In Equilibrium
CHAPTER 3 Demand, Supply, and Market Equilibrium
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Demand and Supply in Product Markets: A Review
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Demand and Supply in Product Markets: A Review
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Looking Ahead: Markets and the Allocation of Resources
produced.
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REVIEW TERMS AND CONCEPTS
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