SIMPLYECONS

Market Equilibrium:
Demand and Supply
Microeconomics: Demand

Microeconomics: Supply
 Supply
The various quan..es of a good (or service) a firm willing and able to produce
and supply to the market at different prices, during a certain .me period.

Market Supply
the horizontal sum of all firms’ supply curves and/or schedules at each price.

Firm A Firm B Market Supply

Price Quan.ty Quan.ty Firm A + Firm B
$ per burger supplied supplied
2 4 5 9
4 6 10 16
6 8 15 23
8 10 20 30
 Firm A Firm B Market Supply
Price Quan.ty Quan.ty Firm A + Firm B
$ per burger supplied supplied
2 4 5 9
4 6 10 16
6 8 15 23
Price 8 10 20 30

$10 – Firm A’s supply curve for $10 – Firm B’s supply curve for
burger each month S burger each month S
$8 – $8 –

$6 – $6 –

$4 – $4 –

$2 – $2 –
| | | | | | Qty | | | | | | Qty
0 2 4 6 8 10 0 4 8 12 16 20
 Firm A Firm B Market Supply
Price Quan.ty Quan.ty Firm A + Firm B
$ per burger supplied supplied
2 4 5 9
4 6 10 16
6 8 15 23
Price 8 10 20 30

$10 – Firm A’s supply curve for $10 – Firm B’s supply curve for
burger each month S burger each month S
$8 – $8 –

$6 – $6 –

$4 – $4 –

$2 – $2 –
| | | | | | Qty | | | | | | Qty
0 2 4 6 8 10 0 4 8 12 16 20
 Firm A Firm B Market Supply
Price Quan.ty Quan.ty Firm A + Firm B
$ per burger supplied supplied
2 4 5 9
4 6 10 16
6 8 15 23
Price 8 10 20 30

$10 –
MARKET SUPPLY CURVE
S
$8 – for burger each month

$6 –

$4 –

$2 –
| | | | | | | | | | | Qty
0 3 6 9 12 15 18 21 24 27 30
 Demand
the quan.ty of a good or service an individual is
willing and able to buy at various prices.

Market Demand
the horizontal sum of all Individual demand curves
and/or schedules at each price.

Individual A Individual B Market

Bob Ted Demand
Price Quan.ty Quan.ty Individual A +
$ per burger demanded demanded Individual B
2 8 13 21
4 6 10 16
6 4 7 11
8 2 5 7
 Individual A Individual B Market
Bob Ted Demand
Price Quan.ty Quan.ty Individual A +
$ per burger demanded demanded Individual B
2 8 13 21
4 6 10 16
6 4 7 11
8 2 5 7

Price $/unit Price $/unit

$8 – Bob’s demand curve for $8 – Ted’s demand curve for

Burger each month Burger each month
$6 – $6 –

$4 – $4 –

$2 – $2 –
D D
| | | | | | Qty | | | | | | | | Qty
0 2 4 6 8 10 0 2 4 6 8 10 12 14
 Individual A Individual B Market
Bob Ted Demand
Price Quan.ty Quan.ty Individual A +
$ per burger demanded demanded Individual B
2 8 13 21
4 6 10 16
6 4 7 11
8 2 5 7

Price $/unit Price $/unit

$8 – Bob’s demand curve for $8 – Ted’s demand curve for

Burger each month Burger each month
$6 – $6 –

$4 – $4 –

$2 – $2 –
D D
| | | | | | Qty | | | | | | | | Qty
0 2 4 6 8 10 0 2 4 6 8 10 12 14
 Individual A Individual B Market
Bob Ted Demand
Price Quan.ty Quan.ty Individual A +
$ per burger demanded demanded Individual B
2 8 13 21
4 6 10 16
6 4 7 11
Price 8 2 5 7
$10 –
MARKET DEMAND CURVE
$8 – for burger each month

$6 –

$4 –

$2 –
D
| | | | | | | | | | | Qty
0 3 6 9 12 15 18 21 24 27 30
 Market Supply Market
Demand
Price Firm A + Firm B Individual A +
$ per burger Individual B
2 9 21
4 16 16
6 23 11
Price 8 30 7
$10 –
MARKET FOR BURGER
$8 – S

$6 –

$4 –

$2 –
D
| | | | | | | | | | | Qty
0 3 6 9 12 15 18 21 24 27 30
 Market Market Market
Supply Demand SituaRon
Price Firm A + Individual A +
$ per burger Firm B Individual B
2 9 21 Shortage (12)
4 16 16 Equilibrium
6 23 11 Surplus (12)
Price 8 30 7 Surplus (23)
$10 –
MARKET FOR BURGER
$8 – S
Surplus (S > D)
$6 –

$4 – Equilibrium (D = S)

$2 – Shortage (D > S)
D
| | | | | | | | | | |
16 Qty
0 3 6 9 12 15 18 21 24 27 30
 Market Market Market Pressure on
Supply Demand SituaRon price
Price Firm A + Individual A +
$ per burger Firm B Individual B
2 9 21 Shortage (12) Upward
4 16 16 Equilibrium None
6 23 11 Surplus (12) Downward
8 30 7 Surplus (23) Downward
Price
$10 –
MARKET FOR BURGER
$8 – S

$6 –

$4 – Equilibrium (D = S)

$2 –
D
| | | | | | | | | | |
16 Qty
0 3 6 9 12 15 18 21 24 27 30
FuncRons of price mechanism
1. Ra.oning func.on
2. Signaling func.on
3. Incen.ve func.on