Markets

Demand Defined
Demand Graphed
Changes in Deman
d
Supply Defined
3 CHAPTER

Individual
Supply Graphed
Changes in Supply
Equilibrium

Markets:
Surpluses
Shortages
Key Terms

Previous Next
Slide
End
Slide
Demand & Supply
Show
3-1
Copyright McGraw-Hill/Irwin, 2005
Markets
MARKETS DEFINED
Demand Defined
Demand Graphed
Changes in Deman
d
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
POTENTIAL POTENTIAL
BUYERS SELLERS
Previous Next

MARKETS
Slide Slide
End
Show
3-2
Copyright McGraw-Hill/Irwin, 2005
 DEMAND DEFINED
Markets
Demand Defined
Demand Graphed
DEMAND SCHEDULE
Changes in Deman
d P QD
Supply Defined
$5 10
Various Amounts
Supply Graphed
Changes in Supply 4 20 A Series of Possible Prices
Equilibrium
Surpluses
3 35
Shortages 2 55
Key Terms
1 80
Previous Next
…a specified time period
…other things being equal
Slide Slide
End
Show
3-3
Copyright McGraw-Hill/Irwin, 2005
Markets
LAW OF DEMAND
Demand Defined
Demand Graphed
An inverse relationship exists
Changes in Deman
d between price and quantity
Supply Defined
Supply Graphed
demanded
Changes in Supply
Equilibrium
Surpluses
• As Price Falls…
…Quantity Demanded Rises
Shortages
Key Terms

Previous Next
• As Price Rises…
Slide Slide
End …Quantity Demanded Falls
Show
3-4
Copyright McGraw-Hill/Irwin, 2005
Markets
LAW OF DEMAND
Demand Defined
Demand Graphed
Changes in Deman
• Diminishing Marginal Utility
d
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms

Previous Next
Slide Slide
End
Show
3-5
Copyright McGraw-Hill/Irwin, 2005
Markets
LAW OF DEMAND
Demand Defined
Demand Graphed
Changes in Deman
• Diminishing Marginal Utility
d
Supply Defined • Income Effect
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms

Previous Next
Slide Slide
End
Show
3-6
Copyright McGraw-Hill/Irwin, 2005
Markets
LAW OF DEMAND
Demand Defined
Demand Graphed
Changes in Deman
• Diminishing Marginal Utility
d
Supply Defined • Income Effect
Supply Graphed
Changes in Supply
Equilibrium
• Substitution Effect
Surpluses
Shortages
Key Terms

Previous Next
Slide Slide
End
Show
3-7
Copyright McGraw-Hill/Irwin, 2005
Markets
LAW OF DEMAND
Demand Defined
Demand Graphed
Changes in Deman
• Diminishing Marginal Utility
d
Supply Defined • Income Effect
Supply Graphed
Changes in Supply
Equilibrium
• Substitution Effect
Surpluses
Shortages
• Demand Curve
Key Terms
• Individual and Market
Previous
Slide
Next
Slide
Demand
End
Show
3-8
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5
Plot the Points
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
Supply Graphed
$5 10
Changes in Supply 4 20 3
Equilibrium
Surpluses
3 35
Shortages 2 55 2
Key Terms
1 80
1

Previous Next
Slide Slide
End
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Show
Quantity of Corn
3-9
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5
Plot the Points
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
Supply Graphed
$5 10
Changes in Supply 4 20 3
Equilibrium
Surpluses
3 35
Shortages 2 55 2
Key Terms
1 80
1

Previous Next
Slide Slide
End
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Show
Quantity of Corn
3 - 10
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5
Plot the Points
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
Supply Graphed
$5 10
Changes in Supply 4 20 3
Equilibrium
Surpluses
3 35
Shortages 2 55 2
Key Terms
1 80
1

Previous Next
Slide Slide
End
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35 Q
Show
Quantity of Corn
3 - 11
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5
Plot the Points
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
Supply Graphed
$5 10
Changes in Supply 4 20 3
Equilibrium
Surpluses
3 35
Shortages 2 55 2
Key Terms
1 80
1

Previous Next
Slide Slide
End
o 10 20 30 40 50 60 70 80 Q
Show
Quantity of Corn
3 - 12
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5
Plot the Points
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
Supply Graphed
$5 10
Changes in Supply 4 20 3
Equilibrium
Surpluses
3 35
Shortages 2 55 2
Key Terms
1 80
1

Previous Next
Slide Slide
End
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Show
Quantity of Corn
3 - 13
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5
Demand Graphed
Changes in Deman
P QD
Connect the Points
d
4
Supply Defined
Supply Graphed
$5 10
Changes in Supply 4 20 3
Equilibrium
Surpluses
3 35
Shortages 2 55 2
Key Terms
1 80
1
D
Previous Next
Slide Slide
End
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Show
Quantity of Corn
3 - 14
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5

What if
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
$5 10
Supply Graphed
Changes in Supply 4 20 3
Demand
3 35 Increases?
Equilibrium
Surpluses
Shortages 2 55 2
Key Terms
1 80
1
D
Previous Next
Slide Slide
End
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Show
Quantity of Corn
3 - 15
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P Increase
CORN $5
Demand Graphed
Changes in Deman
P QD in Quantity
d
Supply Defined
$5 1030
4
Demanded
Supply Graphed
Changes in Supply 4 2040 3
Equilibrium
3 3560
Surpluses
Shortages 2 5580 2 Increase
Key Terms
1 80+ in D’
1
Demand D
Previous Next
Slide Slide
End
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Show
Quantity of Corn
3 - 16
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
CORN $5

What if
Demand Graphed
Changes in Deman
d P QD
4
Supply Defined
$5 10
Supply Graphed
Changes in Supply 4 20 3
Demand
3 35 Decreases?
Equilibrium
Surpluses
Shortages 2 55 2
Key Terms
1 80
1
D
Previous Next
Slide Slide
End
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Show
Quantity of Corn
3 - 17
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P Decrease
CORN $5
Demand Graphed
Changes in Deman
d P QD in Quantity
4
Supply Defined
$5 10-- Demanded
Supply Graphed
Changes in Supply 4 2010 3
Equilibrium
Surpluses
3 3520
Shortages 2 5540 2 Decrease
Key Terms
1 8060 in 1
Demand D
Previous
Slide
Next
Slide
D’
End
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Quantity of Corn
3 - 18
Copyright McGraw-Hill/Irwin, 2005
 DETERMINANTS OF
Markets DEMAND
Demand Defined
Demand Graphed
• Tastes
Changes in Deman
d
Supply Defined
• Number of Buyers
Supply Graphed
Changes in Supply
• Income
Equilibrium – Normal (Superior) & Inferior Goods
• Prices of Related Goods
Surpluses
Shortages
Key Terms
– Substitutes & Complements
– Unrelated Goods
Previous Next
Slide
End
Slide
• Expectations
Show
3 - 19
Copyright McGraw-Hill/Irwin, 2005
 SUPPLY DEFINED
Markets

SUPPLY SCHEDULE
Demand Defined
Demand Graphed CORN
Changes in Deman
d
P QS
Various Amounts
Supply Defined
Supply Graphed
$1 5
Changes in Supply 2 20
Equilibrium
Surpluses
3 35
Shortages 4 50
Key Terms
5 60
Previous Next
Slide Slide
End
Show
3 - 20
Copyright McGraw-Hill/Irwin, 2005
 SUPPLY DEFINED
Markets

SUPPLY SCHEDULE
Demand Defined
Demand Graphed CORN
Changes in Deman
d
P QS
Various Amounts
Supply Defined
Supply Graphed
$1 5
Changes in Supply
A Series of Possible Prices 2 20
Equilibrium
Surpluses
3 35
Shortages 4 50
Key Terms
5 60
Previous Next
…a specified time period
…other things being equal
Slide Slide
End
Show
3 - 21
Copyright McGraw-Hill/Irwin, 2005
 LAW OF SUPPLY
Markets
Demand Defined A direct relationship exists
Demand Graphed
Changes in Deman
between price and quantity
d
Supply Defined supplied
Supply Graphed
Changes in Supply
Equilibrium
• As Price Rises…
Surpluses
Shortages …Quantity Supplied Rises
Key Terms

• As Price Falls…
Previous Next
Slide Slide
End …Quantity Supplied Falls
Show
3 - 22
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets
Demand Defined
Price of Corn
P Plot the Points
$5 CORN
Demand Graphed
Changes in Deman
d
P QS
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3 4 50
Equilibrium
Surpluses
3 35
Shortages
2
2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
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Show
3 - 23 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets
Demand Defined
Price of Corn
P Plot the Points
$5 CORN
Demand Graphed
Changes in Deman
d
P QS
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3 4 50
Equilibrium
Surpluses
3 35
Shortages
2
2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
o 10 20 30 40 50 60 70 80 Q
Show
3 - 24 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets
Demand Defined
Price of Corn
P Plot the Points
$5 CORN
Demand Graphed
Changes in Deman
d
P QS
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3 4 50
Equilibrium
Surpluses
3 35
Shortages
2
2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
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Show
3 - 25 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets
Demand Defined
Price of Corn
P Plot the Points
$5 CORN
Demand Graphed
Changes in Deman
d
P QS
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3 4 50
Equilibrium
Surpluses
3 35
Shortages
2
2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
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Show
3 - 26 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets
Demand Defined
Price of Corn
P Plot the Points
$5 CORN
Demand Graphed
Changes in Deman
d
P QS
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3 4 50
Equilibrium
Surpluses
3 35
Shortages
2
2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
o 10 20 30 40 50 60 70 80 Q
Show
3 - 27 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets Price of Corn
Demand Defined P
Demand Graphed
$5 S CORN
Changes in Deman
d
P QS
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3 4 50
Equilibrium
Surpluses
3 35
Shortages
2
2 20
Key Terms

1
1 5
Previous Next
Connect the Points
Slide Slide
End
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Show
3 - 28 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets Price of Corn
Demand Defined P
Demand Graphed
$5 S CORN
Changes in Deman P QS
What if
d
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3
Supply 4 50
Equilibrium
Surpluses
3 35
Shortages
2
Increases? 2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
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Show
3 - 29 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets Price of Corn
Demand Defined P Increase S’
Demand Graphed
$5 S CORN
Changes in Deman
d
in P QS
4
Supply Defined Supply $5 6080
Supply Graphed
Changes in Supply 3 4 5070
Equilibrium
Surpluses
3 3560
Shortages
2
Increase 2 2045
Key Terms

1 in Quantity
1 530
Previous Next Supplied
Slide Slide
End
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Show
3 - 30 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets Price of Corn
Demand Defined P
Demand Graphed
$5 S CORN
Changes in Deman P QS
What if
d
4
Supply Defined
Supply Graphed
$5 60
Changes in Supply 3
Supply 4 50
Equilibrium
Surpluses
3 35
Shortages
2
Decreases? 2 20
Key Terms

1
1 5
Previous Next
Slide Slide
End
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3 - 31 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING SUPPLY
Markets Price of Corn Decrease
Demand Defined P S’
Demand Graphed
$5 in S CORN
Changes in Deman
d
Supply P QS
4
Supply Defined
Supply Graphed
$5 6045
Changes in Supply 3 4 5030
Equilibrium
3 3520
Surpluses
Shortages
2 Decrease 2 200
Key Terms
in Quantity 1 5--
1

Previous Next
Supplied
Slide Slide
End
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3 - 32 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 DETERMINANTS OF
Markets SUPPLY
Demand Defined
Demand Graphed • Resource Prices
Changes in Deman

• Technology
d
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
• Taxes & Subsidies
Surpluses
Shortages
Key Terms
• Prices of Other Goods
Previous Next
• Price Expectations
Slide Slide
End
Show • Number of Sellers
3 - 33
Copyright McGraw-Hill/Irwin, 2005
 DETERMINANTS OF
Markets SUPPLY
Demand Defined
Demand Graphed • Resource Prices
Changes in Deman

• Technology
Combining
d
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
• Taxes & with
Subsidies
Surpluses
Shortages
Key Terms
• Prices Demand
of Other Goods
Previous Next
• Price Expectations
Slide Slide
End
Show • Number of Sellers
3 - 34
Copyright McGraw-Hill/Irwin, 2005
 MARKET DEMAND &
Markets SUPPLY
Demand Defined BUSHELS BUSHELS
Demand Graphed OF CORN OF CORN
MARKET MARKET
Changes in Deman
d P QD 200 DEMAND P QS 200 SUPPLY
Supply Defined
$5 10 B 2,000 $5 60 S12,000

x x 7,000
Supply Graphed
Changes in Supply 4 20 U 4,000 4 50 E10,000
Equilibrium
Surpluses
3 35 Y 7,000
3 35 L

Shortages 2 55 E
11,000 2 20 L
4,000
R E
Key Terms
1 80 16,000 1 5 1,000
S R
Previous Next S
Slide Slide
l l y…
ica
End
EQUILIBRIUM a ph
Gr
Show
3 - 35
Copyright McGraw-Hill/Irwin, 2005
 MARKET DEMAND &
Markets SUPPLY
Price of Corn
Demand Defined CORN P CORN
Demand Graphed MARKET
$5 S MARKET
Changes in Deman
d P QD P Q
4
Supply Defined
Supply Graphed
$52,000 Market $5
12,000
S
Clearing
Changes in Supply 44,0003 4
Equilibrium 10,000
Equilibrium
Surpluses
37,000 37,000
Shortages 11,000
2 2
24,000
Key Terms
16,000
1 11,000
1
D
Previous Next
Slide Slide
End
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Show
3 - 36 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 MARKET DEMAND &
Markets SUPPLY
Price of Corn
Demand Defined CORN P CORN
Demand Graphed MARKET
$5
Surplus S MARKET
Changes in Deman
d P QD At a $4 priceP Q
4
Supply Defined
Supply Graphed
$52,000 more is being$5
12,000
S

Changes in Supply 44,0003 4

supplied than 10,000
Equilibrium
37,000 37,000
Surpluses demanded
Shortages 11,000
2 2
24,000
Key Terms
16,000
1 11,000
1
D
Previous Next
Slide Slide
End
o 2 4 6 78 10 12 14 16 Q
Show
3 - 37 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 MARKET DEMAND &
Markets SUPPLY
Price of Corn
Demand Defined CORN P CORN
Demand Graphed MARKET
$5 S MARKET
Changes in Deman
d P QD P Q
At a $2 price
4
Supply Defined
Supply Graphed
$52,000 more is being $5
12,000
S

Changes in Supply 44,0003 4

10,000
demanded than
Equilibrium
Surpluses
37,000 37,000
supplied
Shortages 11,000
2 2
24,000
Key Terms
16,000
1 Shortage 11,000
1
D
Previous Next
Slide Slide
End
o 2 4 6 78 101112 14 16 Q
Show
3 - 38 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 MARKET DEMAND &
Markets SUPPLY
Price of Corn
Demand Defined CORN P CORN
Demand Graphed MARKET
$5
Surplus S MARKET
Changes in Deman
d P QD P Q
4
Supply Defined
Supply Graphed
$52,000 $5
12,000
S

Changes in Supply 44,0003 4

10,000
Equilibrium
Surpluses
37,000 37,000
Shortages 11,000
2 2
24,000
Key Terms
16,000
1 Shortage 11,000
1
D
Previous Next
Slide Slide
End
o 2 4 6 78 101112 14 16 Q
Show
3 - 39 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 MARKET EQUILIBRIUM
Markets
Demand Defined
Demand Graphed
• Equilibrium Price & Quantity
•
Changes in Deman
d
Supply Defined
Rationing Function of Prices
Supply Graphed
Changes in Supply
• Changes in Demand
•
Equilibrium
Surpluses Changes in Quantity
Demanded
Shortages
Key Terms

Previous Next
• Changes in Supply
• Changes in Quantity Supplied
Slide Slide
End
Show
3 - 40
Copyright McGraw-Hill/Irwin, 2005
 Complex Cases
Markets
Multiple Shifts…
• Supply Increases; Demand
Demand Defined
Demand Graphed

Decreases
Changes in Deman
d
Supply Defined
Supply Graphed – Prices Decrease
Changes in Supply
Equilibrium – Quantity Indeterminate
• Supply Decreases; Demand
Surpluses
Shortages

Increases
Key Terms

Previous
Slide
Next
Slide
– Price Increases
End
Show
– Quantity Indeterminate
3 - 41
Copyright McGraw-Hill/Irwin, 2005
 Complex Cases
Markets
Multiple Shifts…
• Supply Increases; Demand
Demand Defined
Demand Graphed

Increases
Changes in Deman
d
Supply Defined
Supply Graphed – Prices Indeterminate
Changes in Supply
Equilibrium – Quantity Increases
• Supply Decreases; Demand
Surpluses
Shortages

Decreases
Key Terms

Previous
Slide
Next
Slide
– Price Indeterminate
End
Show
– Quantity Decreases
3 - 42
Copyright McGraw-Hill/Irwin, 2005
 Government Set Prices
Markets
Demand Defined
Demand Graphed
• Price Ceilings
Changes in Deman
d –Shortages
–Rationing Problem
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
–Black Markets
Shortages
Key Terms
–Rent Controls
Previous Next
• Price Floors
Slide
End
Show
Slide
–Surpluses
3 - 43
Copyright McGraw-Hill/Irwin, 2005
 Government Set Prices
Markets
Demand Defined
Demand Graphed
• Price Ceilings
Changes in Deman
d –Shortages
–Rationing Problem
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
–Black Markets
Shortages
Key Terms
–Rent Controls
Previous Next
• Price Floors
Slide
End
Show
Slide
–Surpluses
3 - 44
Copyright McGraw-Hill/Irwin, 2005
 Key Terms
change in quantity demanded
market
demand supply
demand schedule supply schedule
law of demand law of supply
diminishing marginal utility supply curve
income effect determinants of supply
substitution effect change in supply
demand curve change in quantity supplied
determinants of demand surplus
shortage
normal goods
equilibrium price
inferior goods
equilibrium quantity
substitute good
rationing function of prices
complementary good
price ceiling and floor
change in demand
Copyright McGraw-Hill/Irwin, 2005 BACK END
 Next:
Markets
Demand Defined
Demand Graphed
Changes in Deman
d
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms

Previous Next
Slide Slide
End
Show
3 - 46
Chapter 4
Copyright McGraw-Hill/Irwin, 2005