Markets

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

Changes in Supply
Equilibrium
Surpluses
Individual
Markets:
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 Demand
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 Demand
P QD
Supply Defined
Supply Graphed $5 10
Various Amounts
Changes in Supply
Equilibrium
4 20 A Series of Possible Prices
Surpluses 3 35
Shortages
Key Terms
2 55
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 Demand
Supply Defined
between price and quantity
Supply Graphed
Changes in Supply
demanded
Equilibrium
Surpluses • As Price Falls…
Shortages
Key Terms
…Quantity Demanded Rises
Previous Next
• As Price Rises…
…Quantity Demanded Falls
Slide Slide
End
Show
3-4
Copyright McGraw-Hill/Irwin, 2005
Markets
LAW OF DEMAND
Demand Defined
Demand Graphed
Changes in Demand
• Diminishing Marginal Utility
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 Demand
• Diminishing Marginal Utility
Supply Defined
Supply Graphed
• Income Effect
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 Demand
• Diminishing Marginal Utility
Supply Defined
Supply Graphed
• Income Effect
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 Demand
• Diminishing Marginal Utility
Supply Defined
Supply Graphed
• Income Effect
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 Demand
P QD
Supply Defined 4
Supply Graphed $5 10
Changes in Supply
Equilibrium
4 20 3
Surpluses 3 35
Shortages
Key Terms
2 55 2

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 Demand
P QD
Supply Defined 4
Supply Graphed $5 10
Changes in Supply
Equilibrium
4 20 3
Surpluses 3 35
Shortages
Key Terms
2 55 2

1 80
1

Previous Next
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End
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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 Demand
P QD
Supply Defined 4
Supply Graphed $5 10
Changes in Supply
Equilibrium
4 20 3
Surpluses 3 35
Shortages
Key Terms
2 55 2

1 80
1

Previous Next
Slide Slide
End
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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 Demand
P QD
Supply Defined 4
Supply Graphed $5 10
Changes in Supply
Equilibrium
4 20 3
Surpluses 3 35
Shortages
Key Terms
2 55 2

1 80
1

Previous Next
Slide Slide
End
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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 Demand
P QD
Supply Defined 4
Supply Graphed $5 10
Changes in Supply
Equilibrium
4 20 3
Surpluses 3 35
Shortages
Key Terms
2 55 2

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
$5
Demand Graphed
Changes in Demand
CORN
P QD
Connect the Points
Supply Defined 4
Supply Graphed $5 10
Changes in Supply
Equilibrium
4 20 3
Surpluses 3 35
Shortages
Key Terms
2 55 2

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
$5

What if
Demand Graphed CORN
Changes in Demand
P QD
Supply Defined 4
$5 10
Supply Graphed
Changes in Supply
4 20 3
Demand
Equilibrium
Surpluses 3 35 Increases?
Shortages
Key Terms
2 55 2

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 Demand
P QD in Quantity
Supply Defined
Supply Graphed $5 1030
4
Demanded
Changes in Supply
Equilibrium
4 2040 3
Surpluses 3 3560
Shortages
2 5580 2 Increase
Key Terms
1 80 + in D’
1
Demand D
Previous Next
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End
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Quantity of Corn
3 - 16
Copyright McGraw-Hill/Irwin, 2005
 GRAPHING DEMAND
Markets Price of Corn
Demand Defined P
$5

What if
Demand Graphed CORN
Changes in Demand
P QD
Supply Defined 4
$5 10
Supply Graphed
Changes in Supply
4 20 3
Demand
Equilibrium
Surpluses 3 35 Decreases?
Shortages
Key Terms
2 55 2

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 Demand
P QD in Quantity
Supply Defined 4
Supply Graphed $5 10-- Demanded
Changes in Supply
Equilibrium
4 2010 3
Surpluses 3 3520
Shortages
Key Terms
2 5540 2 Decrease
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 Demand
Supply Defined • Number of Buyers
• Income
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
– Normal (Superior) & Inferior Goods
Shortages
Key Terms
• Prices of Related Goods
– 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 Demand P QS
Supply Defined
Various Amounts
Supply Graphed $1 5
2 20
Changes in Supply
Equilibrium
Surpluses 3 35
4 50
Shortages
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 Demand P QS
Supply Defined
Various Amounts
Supply Graphed $1 5
A Series of Possible Prices 2 20
Changes in Supply
Equilibrium
Surpluses 3 35
4 50
Shortages
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 Demand
between price and quantity
Supply Defined
Supply Graphed
supplied
Changes in Supply
Equilibrium • As Price Rises…
Surpluses
Shortages
Key Terms …Quantity Supplied Rises
• 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 Demand P QS
Supply Defined 4
Supply Graphed $5 60
4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
2 20
Shortages 2
Key Terms

1
1 5
Previous Next
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End
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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 Demand P QS
Supply Defined 4
Supply Graphed $5 60
4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
2 20
Shortages 2
Key Terms

1
1 5
Previous Next
Slide Slide
End
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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 Demand P QS
Supply Defined 4
Supply Graphed $5 60
4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
2 20
Shortages 2
Key Terms

1
1 5
Previous Next
Slide Slide
End
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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 Demand P QS
Supply Defined 4
Supply Graphed $5 60
4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
2 20
Shortages 2
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 Demand P QS
Supply Defined 4
Supply Graphed $5 60
4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
2 20
Shortages 2
Key Terms

1
1 5
Previous Next
Slide Slide
End
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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 Demand P QS
Supply Defined 4
Supply Graphed $5 60
4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
2 20
Shortages 2
Key Terms

1 5
Connect the Points
1

Previous Next
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 Demand P QS
Supply Defined
Supply Graphed
4
What if $5 60
Supply 4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
Increases? 2 20
Shortages 2
Key Terms

1
1 5
Previous Next
Slide Slide
End
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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 Demand in P QS
Supply Defined 4
Supply Graphed Supply $5 6080
4 5070
Changes in Supply
Equilibrium
3
Surpluses 3 3560
Shortages
Key Terms
2
Increase 2 2045
1 in Quantity
1 530
Previous Next Supplied
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End
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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 Demand P QS
Supply Defined
Supply Graphed
4
What if $5 60
Supply 4 50
Changes in Supply
Equilibrium
3
Surpluses 3 35
Decreases? 2 20
Shortages 2
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 Demand Supply P QS
Supply Defined 4
Supply Graphed $5 6045
4 5030
Changes in Supply
Equilibrium
3
Surpluses 3 3520
Shortages 2 Decrease 2 20 0
Key Terms
in Quantity 1 5 --
1

Previous Next
Supplied
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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 Demand
Supply Defined
Supply Graphed
• Technology
• Taxes & Subsidies
Changes in Supply
Equilibrium
Surpluses

• Prices of Other Goods

Shortages
Key Terms

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 Demand
Supply Defined
Supply Graphed
• Technology
Combining
• Taxes & with
Changes in Supply
Equilibrium
Surpluses
Subsidies
• Prices Demand
of Other Goods
Shortages
Key Terms

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 Demand
P QD 200 DEMAND P QS 200 SUPPLY
Supply Defined
Supply Graphed $5 10 B 2,000 $5 60 S 12,000

4 20
x 4,000 4 50
x 10,000
Changes in Supply U E
Equilibrium
Surpluses 3 35 Y 7,000
3 35 L 7,000
Shortages
Key Terms
2 55 E
11,000 2 20 L
4,000
R E
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 Demand
P QD P Q
Supply Defined 4
Supply Graphed $5 2,000 Market $512,000
S
Clearing
Changes in Supply
Equilibrium
4 4,000 3
Equilibrium 410,000
Surpluses 3 7,000 3 7,000
Shortages
Key Terms
211,000 2
2 4,000
116,000 1 1,000
1
D
Previous Next
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End
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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 Demand
P QD At a $4 price P Q
Supply Defined 4
Supply Graphed $5 2,000 more is being $512,000
S
Changes in Supply
Equilibrium
4 4,000 3 supplied than 410,000
Surpluses 3 7,000 3 7,000
demanded
Shortages
Key Terms
211,000 2
2 4,000
116,000 1 1,000
1
D
Previous Next
Slide Slide
End
o 2 4 6 78 10 12 14 16 Q
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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 Demand
P QD P Q
At a $2 price
Supply Defined 4
Supply Graphed $5 2,000 more is being $512,000
S
Changes in Supply
4 4,000 3 410,000
Equilibrium demanded than
Surpluses 3 7,000 3 7,000
supplied
Shortages
Key Terms
211,000 2
2 4,000
116,000 Shortage 1 1,000
1
D
Previous Next
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End
o 2 4 6 78 101112 14 16 Q
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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 Demand
P QD P Q
Supply Defined 4
Supply Graphed $5 2,000 $512,000
S
Changes in Supply
Equilibrium
4 4,000 3 410,000
Surpluses 3 7,000 3 7,000
Shortages
Key Terms
211,000 2
2 4,000
116,000 Shortage 1 1,000
1
D
Previous Next
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End
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3 - 39 Quantity of Corn
Copyright McGraw-Hill/Irwin, 2005
 MARKET EQUILIBRIUM
Markets
Demand Defined
Demand Graphed
• Equilibrium Price & Quantity
• Rationing Function of Prices
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply • Changes in Demand
Equilibrium
Surpluses
Shortages
• Changes in Quantity
Key Terms
Demanded
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 Demand
Supply Defined
Supply Graphed
Changes in Supply
– Prices Decrease
Equilibrium
Surpluses
– Quantity Indeterminate
Shortages
Key Terms
• Supply Decreases; Demand
Increases
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 Demand
Supply Defined
Supply Graphed
Changes in Supply
– Prices Indeterminate
Equilibrium
Surpluses
– Quantity Increases
Shortages
Key Terms
• Supply Decreases; Demand
Decreases
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 Demand
Supply Defined
–Shortages
Supply Graphed
Changes in Supply
–Rationing Problem
Equilibrium
Surpluses –Black Markets
–Rent Controls
Shortages
Key Terms

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 Demand
Supply Defined
–Shortages
Supply Graphed
Changes in Supply
–Rationing Problem
Equilibrium
Surpluses –Black Markets
–Rent Controls
Shortages
Key Terms

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 Demand
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