Chapter 3 - Supply and Demand

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Chapter 3 - Supply and Demand Powered By Docstoc
					      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 ↑
        • technological advance
        • 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
             Adjustment
            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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