Chapter

2
Demand,
Supply, and
Chapter
Equilibrium
Prices

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.1 Demand Function.

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 chapter 2
Demand, Supply, and Equilibrium Prices

Determinants of Quantity Demanded

• With regard to the effect of income, a good
may be “normal” or inferior”.
• With regard to the price of related goods,
two goods may be substitute (X and Y) or
complements (X and Z).
• THE LAW OF DEMAND (see next page)
 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.1 The Demand Curve for a Product.

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 chapter 2
Demand, Supply, and Equilibrium Prices

Movement vs. Shift

• A price change causes a movement along the
demand curve: a change in quantity
demanded
• If any other variable in the demand function
changes, the demand curve will shift: a
change in demand – willingness to pay
• Hence, all the variables in the demand
function, EXCEPT THE PRICE, are called
“demand shifters”.
 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.2 Change (Increase) in Demand

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.3 Individual Versus Market Demand Curve

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.2 Mathematical Example of a Demand Function.

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.3 Mathematical Example of a Demand Function.

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.3 Mathematical Example of a Demand Function.

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.4 Supply Function.

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.4 The Supply Curve for a Product

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 Chapter 2
Demand, Supply, and Equilibrium Prices

Movement vs. Shift

• A price change causes a movement along the
supply curve: a change in quantity supplied
• If any other variable in the supply function
changes, the supply curve will shift: a change
in supply – a change in marginal cost
• Hence, all the variables in the supply
function, EXCEPT THE PRICE, are called
“supply shifters”.
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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.5 Change (Increase) in Supply

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.5 Mathematical Example of a Supply Function

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.6 Mathematical Example of a Supply Function

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 Chapter 2
Demand, Supply, and Equilibrium Prices

TABLE 2.1 Factors Influencing Market Demand and Supply

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.6 Market Equilibrium

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.7 A Lower-Than-Equilibrium Price

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.8 A Higher-Than-Equilibrium Price

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.3 & 2.6 Mathematical Example of Equilibrium

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.7 Mathematical Example of Equilibrium

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.15 Copper Industry Example

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.9 Change in Demand

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.10 Change in Supply

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.11 Decrease in Supply and Increase in Demand: Increase in Equilibrium Quantity

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.12 Decrease in Supply and Increase in Demand: Decrease in Equilibrium Quantity

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.13 Increase in Supply and Increase in Demand: Lower Equilibrium Price

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.14 Increase in Supply and Increase in Demand: Higher Equilibrium Price

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.3 Mathematical Example of a Demand Function.

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.6 Mathematical Example of a Supply Function

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.7 Mathematical Example of Equilibrium

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.15 Copper Industry Example

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.8 Mathematical Example of an Equilibrium Change

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.9 Mathematical Example of an Equilibrium Change

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 Chapter 2
Demand, Supply, and Equilibrium Prices

EQUATION 2.10 Mathematical Example of an Equilibrium Change

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 Chapter 2
Demand, Supply, and Equilibrium Prices

FIGURE 2.15 Copper Industry Example

© 2014 Pearson Education, Inc.