# Chapter 3 - Supply and Demand

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```					      Fig. 1 The Demand Curve

Price per
Bottle              When the price is \$4.00
per bottle, 40,000
bottles are demanded
(point A).
A
\$4.00
At \$2.00 per bottle,
60,000 bottles are
B
2.00                          demanded (point B).

D

40,000    60,000           Number of Bottles
per Month

1
Fig. 2 A Shift of the Demand
Curve
An increase in income
shifts the demand curve
Price per                     for maple syrup from D1
Bottle                     to D2. At each price, more
bottles are demanded
after the shift.

B           C
\$2.00

D1             D2

60,000   80,000        Number of Bottles
per Month
2
Fig. 3(a) Movements Along and
Shifts of the Demand Curve
Price
Price increase moves us
leftward along demand
curve
P2
Price increase moves us
rightward along demand
curve
P1

P3

Q2   Q1        Q3              Quantity
3
Fig. 3(b) Movements Along and
Shifts of the Demand Curve
Price
Entire demand curve shifts
rightward when:
• income or wealth ↑
• price of substitute ↑
• price of complement ↓
• population ↑
• expected price ↑
• tastes shift toward good

D2
D1

Quantity
4
Fig. 3(c) Movements Along and
Shifts of the Demand Curve
Price
Entire demand curve shifts
leftward when:
• income or wealth ↓
• price of substitute ↓
• price of complement ↑
• population ↓
• expected price ↓
• tastes shift toward good

D1
D2

Quantity
5
Fig. 4 The Supply Curve
Price per   When the price is \$2.00
Bottle   per bottle, 40,000 bottles
S
are supplied (point F).

\$4.00                                  G

At \$4.00 per bottle,
2.00                        F             quantity supplied is
60,000 bottles (point G).

40,000     60,000              Number of Bottles
per Month
6
Fig. 5 A Shift of the Supply Curve

Price per   A decrease in transportation
Bottle   costs shifts the supply curve for
maple syrup from S1 to S2.
S1            S2
At each price, more bottles
are supplied after the shift
\$4.00                                                     J
G

60,000        80,000   Number of Bottles
per Month
7
Fig. 6(a) Changes in Supply and in
Quantity Supplied
Price   Price increase moves                    S
us rightward along
supply curve

P2

P1
Price increase moves
us leftward along
P3                                supply curve

Q3               Q1         Q2         Quantity   8
Fig. 6(b) Changes in Supply and in
Quantity Supplied

Price   Entire supply curve shifts    S1
rightward when:                       S2
• price of input ↓
• price of alternate good ↓
• number of firms ↑
• expected price ↑
• favorable weather

9
Quantity
Fig. 6(c) Changes in Supply and in
Quantity Supplied

Price
Entire supply curve shifts    S2
rightward when:                       S1
• price of input ↑
• price of alternate good ↑
• number of firms ↓
• expected price ↑
• unfavorable weather

10
Quantity
Fig. 7 Market Equilibrium

Price per    2. causes the price       3. shrinking the
Bottle       to rise . . .             excess demand . . .

S

E
4. until price reaches its
\$3.00
equilibrium value of \$3.00
.
H
1.00                                           J
Excess Demand
D
25,000 50,000 75,000             Number of Bottles
1. At a price of \$1.00 per
per Month
bottle an excess demand
of 50,000 bottles . . .
11
Fig. 8 Excess Supply and Price
1. At a price of \$5.00 per
Price per      bottle an excess supply
Bottle      of 30,000 bottles . . .

Excess Supply at \$5.00 S    3. shrinking the
excess supply . . .
\$5.00                                            L
K
2. causes the
price to drop,              E
3.00                                                4. until price reaches its
equilibrium value of
\$3.00.

D
35,000 50,000 65,000           Number of Bottles
per Month
12
Fig. 9 A Shift in Demand and a
New Equilibrium
4. Equilibrium       3. to a new
Price per      price                equilibrium.
Bottle      increases
2. moves us along
S        the supply
curve . . .
\$4.00                                       F'
1. An increase in
3.00                             E                          demand . . .

D2

D1

50,000 60,000           Number of Bottles of
5. and equilibrium quantity                          Maple Syrup per Period
increases too.
13
Fig. 10 A Shift of Supply and a
New Equilibrium
Price per
Bottle           S2         S1

\$5.00           E'

3.00                  E

D

35,000 50,000        Number of Bottles
14
Fig. 11 Changes in the Market for
Handheld PCs
Price per      3. moved the market to
Handheld          a new equilibrium.
PC
2. and a decrease
in demand . . .
4. Price
decreased . . .                                S2002
S2003
A
\$500                                                       1. An increase in
B                              supply . . .
\$400

5. and quantity                                       D2002
decreased as well.                           D2003
2.45 3.33          Millions of Handheld PCs
per Quarter
15
Fig. 12 A Price Ceiling in the
Market for Maple Syrup
5. With a black market, the
Price per                                        lower quantity sells for a
Bottle                                        higher price than initially.

3. and decreases                               4. The result is a shortage
quantity supplied.                        S    – the distance between
R and V.
\$4.00                                  T
E
3.00
R                  V           2. increases quantity
2.00                                                                demanded
D
40,000 50,000 60,000         Number of Bottles of
1. A price ceiling lower than                      Maple Syrup per Period
the equilibrium price . . .                                             16
Fig. 13 The Market for Oil
Price per
Barrel of Oil                   S2
S1

E'
P2

P1                E

D

Q2    Q1                     Barrels of Oil
17
Fig. 14 The Market for Natural Gas

Price per Cubic
Foot of Natural
Gas              S

F'
P4
F
P3                            D2

D1

Q3   Q4       Cubic Feet of
Natural Gas
18
18

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 views: 3 posted: 5/9/2011 language: English pages: 18