copyright © 1999 by harcourt brace & company. all rights reserved. supply and demand
TRANSCRIPT
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Supply and Demand
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Trading Opportunities: The Price-Taking Model
Each buyer is a price taker.He can buy as much (or as little) of the
good as he wants at some price.He cannot affect the price.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Trading Opportunities: The Price-Taking Model
Each seller is a price taker.She can sell as much (or as little) of the
good as he wants at some price.She cannot affect the price.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Introduction to Demand
How many movies you see this month depends on many conditions.
The price—How much do movie tickets cost?Your tastes—How much do you like movies?Your income—Do you have enough money
to pay for tickets?Prices of other goods—How much would
you have to spend to rent videos or attend concerts?
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Schedule for Tickets
Priceof Tickets
Number IWould Buy
$1 7
$2 6
$3 4
$4 3
$5 2
$6 1
$7 0
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand Curve for Movie Tickets
$10
80Number of Movie Tickets per Month
Pri
ce o
f M
ovie
Tic
kets
1
1
2
3
4
5
6
7
8
9
2 3 4 5 6 7
A
B
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand
A person’s quantity demanded of a good at some price is the amount she would buy at that price.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Demand
A demand curve graphs the relation between the price of a good and the quantity demanded.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Market Demand
The market quantity demanded of a good at some price is the total amount that all buyers in the market would buy at that price.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Market Demand
A market demand curve graphs the relation between the price of a good and the market quantity demanded.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Individual Demands and Market Demand
PriceArchie’s Quantity
DemandedVeronica’s Quantity
DemandedMarket Quantity
Demanded
$1.20 0 + 0 = 0
1.00 10 + 0 = 10
0.90 15 + 0 = 15
0.80 20 + 10 = 30
0.60 30 + 30 = 60
0.40 40 + 50 = 90
0.20 50 + 70 = 120
0.10 55 + 80 = 135
Market Demand for Sodas
0Sodas per Month
Price
per
Sod
a
25 50 75 100 125 150 175
$1.20
0.200.10
0.400.50
0.700.80
1.001.10
0.30
0.60
0.90
Market Demand for Sodas
0Sodas per Month
Price
per
Sod
a
25 50 75 100 125 150 175
$1.20
0.200.10
0.400.50
0.700.80
1.001.10
0.30
0.60
0.90Archie’s Demand)(
Market Demand for Sodas
0Sodas per Month
Price
per
Sod
a
25 50 75 100 125 150 175
$1.20
0.200.10
0.400.50
0.700.80
1.001.10
0.30
0.60
0.90Archie’s Demand)( + Veronica’s
Demand )(
Market Demand for Sodas
0Sodas per Month
Price
per
Sod
a
25 50 75 100 125 150 175
$1.20
0.200.10
0.400.50
0.700.80
1.001.10
0.30
0.60
0.90Archie’s Demand)( + Veronica’s
Demand = Market Demand)( ( )
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Conditions Affecting the Quantity Demanded
Personal taste Usefulness Income and wealth Prices of related goods
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The Law of Demand
An increase in the price of a good, with no change in other conditions, generally reduces the quantity demanded.
Demand curves have negative (downward) slopes.
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Why Demand Curves Slope Downward
Buyers can replace a good with another, cheaper substitute.
People cannot afford to buy as much after a price increase requiring them to turn to cheaper substitutes or less of the higher priced good.
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Changes in Demand
A change in demand means a change in the numbers in the demand schedule and a shift in the demand curve.
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Changes in Demand
An increase (or rise ) in demand means an increase in the quantity demanded at a given price—shifts the demand curve to the right.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Increase in Demand
Quantity Demanded
Price
PriceOld QuantityDemanded
$10 5
9 6
8 8
7 10
6 14
5 20
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Increase in Demand
Quantity Demanded
Price
D1
PriceOld QuantityDemanded
$10 5
9 6
8 8
7 10
6 14
5 20
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Increase in Demand
Quantity Demanded
Price
D1
PriceOld QuantityDemanded
New QuantityDemanded
$10 5 8
9 6 10
8 8 12
7 10 15
6 14 18
5 20 24
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Increase in Demand
Quantity Demanded
Price
D1
D2
PriceOld QuantityDemanded
New QuantityDemanded
$10 5 8
9 6 10
8 8 12
7 10 15
6 14 18
5 20 24
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Changes in Demand
An decrease (or fall ) in demand means an decrease in the quantity demanded at a given price—shifts the demand curve to the left.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Decrease in Demand
Quantity Demanded
Price
PriceOld QuantityDemanded
New QuantityDemanded
$10 5
9 6
8 8
7 10
6 14
5 20
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Decrease in Demand
Quantity Demanded
Price
PriceOld QuantityDemanded
New QuantityDemanded
$10 5
9 6
8 8
7 10
6 14
5 20D1
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Decrease in Demand
Quantity Demanded
Price
PriceOld QuantityDemanded
New QuantityDemanded
$10 5 2
9 6 3
8 8 4
7 10 6
6 14 9
5 20 15D1
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Decrease in Demand
Quantity Demanded
Price
PriceOld QuantityDemanded
New QuantityDemanded
$10 5 2
9 6 3
8 8 4
7 10 6
6 14 9
5 20 15D2
D1
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Changes in Quantity Demanded Versus Changes in Demand
A change in the quantity demanded means a movement along a demand curve due to a change in price.
The demand curve does not move when the quantity demanded changes.
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Changes in Quantity Demanded Versus Changes in Demand
A change in price changes the quantity demanded but not demand.
A change in demand is caused by a change in conditions other than the price of the good.
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Change in Quantity Demanded
Quantity
Price
$10
$5
2010
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Change in Quantity Demanded
Quantity
Price
D
$10
$5
2010
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Change in Quantity Demanded
Quantity
Price
D
$10
$5
2010
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Change in Quantity Demanded
Quantity
Price
D
$10
$5
2010
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Change in Quantity Demanded
Quantity
Price
D
$10
$5
2010
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Changes in Conditions That Cause Changes in Demand
Tastes Usefulness Income and Wealth Prices of Related Goods Number of Potential Buyers
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Tastes
Tastes (or preferences) are people’s underlying likes and dislikes.
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Usefulness
A good’s usefulness is its benefit in creating the products people ultimately want.
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Income and Wealth
Income is the amount of money received each year from working, interest on savings, and other sources such as gifts.
A normal good is a good whose demand increases if income rises.
An inferior good is a good whose demand decreases if income rises.
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Income and Wealth
Wealth is the value of accumulated past savings, including human wealth.
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Prices of Related Goods
Substitutes can be used in place of each other.
An increase in the price of one raises demand for the other.
Complements tend to be used together.
An increase in the price of one reduces demand for the other.
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Number of Potential Buyers
Market demand curves shift when the number of potential buyers changes.
Changes in demographics also cause demand changes.
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Introduction to Supply
How many rooms you will paint this week depends on many conditions.
Cost of paintYour painting skillsHow much you dislike paintingThe alternative use of your time
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Supply Schedule for Painting Services
Price per Room Number I Would Paint
$ 80 0
100 1
120 2
140 3
160 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
2 3 4
Supply Curve for Painting Services
$200
50Rooms Painted per Week
Pric
e pe
r R
oom
1
20
40
60
80
100
120
140
160
180
A
B
2 3 4
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Supply
A seller’s quantity supplied of a good at some price is the amount she would sell at that price.
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Supply
The quantity supplied describes the behavior of sellers.
It is unrelated to the behavior of buyers.
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Supply
A supply schedule lists the various possible prices and quantities supplied.
A supply curve graphs the relation between the price of a good and the quantity supplied.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Market Supply
The market quantity supplied of a good at some price is the total amount that all sellers in the market would sell at that price.
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Market Supply
A market supply curve graphs the relation between the price of a good and the market quantity supplied.
A market supply schedule shows the various possible prices of a good and the market quantity supplied at each price.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Individual and Market Supplies
PriceMama’s Quantity
SuppliedPapa’s Quantity
SuppliedMarket Quantity
Supplied
$12 60 + 40 = 100
10 50 + 30 = 80
8 40 + 20 = 60
6 30 + 10 = 40
4 20 + 0 = 20
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Individual and Market Supplies
Price
20 40 60 80 100 Pizzasper Day
$12
10
8
6
4
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Individual and Market Supplies
Price
20 40 60 80 100 Pizzasper Day
Papa’s Supply of Pizza
$12
10
8
6
4
S
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Individual and Market Supplies
Price
20 40 60 80 100 Pizzasper Day
Papa’s Supply of Pizza
$12
10
8
6
4
SS
Mama’s Supply of Pizza
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Individual and Market Supplies
Price
20 40 60 80 100 Pizzasper Day
Papa’s Supply of Pizza
$12
10
8
6
4
SS
Mama’s Supply of Pizza
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Individual and Market Supplies
Price
20 40 60 80 100 Pizzasper Day
Papa’s Supply of Pizza
$12
10
8
6
4
SS
Mama’s Supply of Pizza
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Individual and Market Supplies
Price
20 40 60 80 100 Pizzasper Day
Papa’s Supply of Pizza
$12
10
8
6
4
SS
Mama’s Supply of Pizza
Market Supply of Pizza
S
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Law of Supply
When the price of a good rises, holding constant other conditions, generally the quantity supplied rises.
Supply curves usually have positive slopes.
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Changes in Supply
A change in supply means a change in the numbers in the supply schedule and a shift in the supply curve.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Changes in Supply
An increase (or rise) in supply shifts the supply curve to the right.
A decrease (or fall) in supply shifts the supply curve to the left.
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Increase in Supply
Quantity Supplied
Pric
e
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Increase in Supply
Quantity Supplied
Pric
e
S1
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Increase in Supply
Quantity Supplied
Pric
e
S1 S2
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Decrease in Supply
Quantity Supplied
Pric
e
S1
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Decrease in Supply
Quantity Supplied
Pric
e
S1S1
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Changes in Quantity Supplied Versus Changes in Supply
A change in the quantity supplied means a movement along a supply curve due to a change in price.
The supply curve does not move and the numbers in the supply schedule do not change.
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Changes in Quantity Supplied Versus Changes in Supply
Price changes affect the quantity supplied, but do not change supply.
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Changes in Quantity Supplied Versus Changes in Supply
A change in supply occurs when there is a change in conditions other than price.
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Changes in Conditions Causing Changes in Supply
Prices of Inputs Technology Number of Potential Sellers
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Prices of Inputs
Increases in the prices of inputs—materials, energy, natural resources, etc.—can decrease supply by reducing the incentive to produce and sell the good.
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Technology
Technology advances lower the costs of producing a good and raise the incentive to produce and sell it.
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Number of Potential Sellers
Market supply increases when the number of potential sellers rises.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Equilibrium of Supply and Demand
An equilibrium occurs when quantity supplied equals quantity demanded.
The price in an equilibrium is the equilibrium price and the quantity is the equilibrium quantity.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Market Equilibrium
Price
0 Quantity
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Market Equilibrium
Price
S
D
0 Quantity
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Market Equilibrium
Price
S
D
A
Q10
P1
Quantity
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Market Equilibrium
Price
S
D
AEquilibrium
Q10
P1
Quantity
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Market Equilibrium
Price
S
D
AEquilibrium
Q10
P1
Equilibrium Price
Quantity
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Market Equilibrium
Equilibrium Quantity
Price
S
D
AEquilibrium
Q10
P1
Quantity
Equilibrium Price
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Market Equilibrium
Equilibrium Quantity
Price
S
D
AEquilibrium
Q10
P1
Quantity
This area shows total spending on the good (Q1 X P1).
Equilibrium Price
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Why the Intersection of the Curves Shows Equilibrium
The quantity demanded equals the quantity supplied.
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Why the Intersection of the Curves Shows Equilibrium
Disequilibrium is the opposite of equilibrium.
It occurs when the quantity demanded does not equal the quantity supplied at the current price.
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Excess Demand (Shortage)
A situation in which the quantity demanded exceeds the quantity supplied.
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Excess Demand (Shortage)
If the price is below the equilibrium price, there is a shortage and the price tends to rise toward the equilibrium.
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Excess Demand
Quantity
Price
0
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Excess Demand
Quantity
Price
S
D
0
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Excess Demand
Quantity
Price
S
D
Equilibrium
0
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Excess Demand
Quantity
Price
S
D
0
P1Equilibrium Price Equilibrium
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Excess Demand
Quantity
Price
S
D
AEquilibrium
0
P1Equilibrium Price
P0Price below Equilibrium Price
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Excess Demand
Quantity
Price
S
D
AEquilibrium
0
P1Equilibrium Price
P0Price below Equilibrium Price
Qs0
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Excess Demand
Quantity
Price
S
D
AEquilibrium
0
P1Equilibrium Price
P0Price below Equilibrium Price
Qs0 Qd
0
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Excess Demand
Quantity
Price
S
D
AEquilibrium
0
Quantity Demanded at the Price P0
P1Equilibrium Price
P0
Quantity Supplied at the Price P0
Price below Equilibrium Price
Qs0 Qd
0
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Excess Demand
Quantity
Price
S
D
AEquilibrium
0
Quantity Demanded at the Price P0
P1Equilibrium Price
P0
Quantity Supplied at the Price P0
Excess Demand (shortage)
Price below Equilibrium Price
Qs0 Qd
0
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Excess Supply (Surplus)
A situation in which the quantity supplied exceeds the quantity demanded.
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Excess Supply (Surplus)
If the price is above the equilibrium price, there is a surplus and the price tends to fall toward the equilibrium.
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Excess Supply
Quantity
Price
0
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Excess Supply
Quantity
Price
0
D
S
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Excess Supply
Quantity
Price
D
0
S
Equilibrium
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Excess Supply
Quantity
Price
D
Equilibrium
0
P1Equilibrium Price
S
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Excess Supply
Quantity
Price
D
Equilibrium
0
P2
Price above Equilibrium Price
P1Equilibrium Price
S
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Excess Supply
Quantity
Price
D
Equilibrium
0
P2
Price above Equilibrium Price
P1Equilibrium Price
S
Qd2
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Excess Supply
Quantity
Price
D
0
P2
Price above Equilibrium Price
P1Equilibrium Price
S
Equilibrium
Qs2Qd
2
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Excess Supply
Quantity
Price
S
D
0
P2
Price above Equilibrium Price
P1
Quantity Demanded at the Price P2
Equilibrium Price
Qs2
Quantity Supplied at the Price P2
Qd2
Equilibrium
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Excess Supply
Quantity
Price
S
D
0
P2
Price above Equilibrium Price
P1
Quantity Demanded at the Price P2
Excess Supply (surplus)
Equilibrium Price
Qs2
Quantity Supplied at the Price P2
Qd2
Equilibrium
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Summary of Equilibrium
At the equilibrium price, there is neither a shortage or a surplus.
The price shows no tendency to change unless demand or supply changes.
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Effects of Changes in Demand or Supply
Changes in demand and supply cause changes in the equilibrium.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Increase or Decrease in Demand
An increase in demand raises the equilibrium price and quantity.
A decrease in demand lowers the equilibrium price and quantity.
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An Increase in Demand
Quantity
Pric
e
0
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An Increase in Demand
Quantity
Pric
e
0
S1
D1
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An Increase in Demand
Quantity
Pric
e
0
P1
Q1
A
S1
D1
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An Increase in Demand
Quantity
Pric
e
0
P1
Q1
A
S1
D2D1
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An Increase in Demand
Quantity
Pric
e
B
0
P1
Q1
A
S1
D2D1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Demand
Quantity
Pric
e
B
Q20
P2
P1
Q1
A
S1
D2D1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Demand
Quantity
Pric
e
B
Q20
P2
P1
Q1
A
S1
D2D1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Demand
Quantity
Pric
e
A
Q10
P1
S1
D1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Demand
Quantity
Pric
e
A
Q10
P1
S1
D1D2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Demand
Quantity
Pric
e
A
Q10
P1
S1
D1D2
B
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Demand
Quantity
Pric
e
A
Q10
P1
S1
D1D2
BP2
Q2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Demand
Quantity
Pric
e
A
Q10
P1
S1
D1D2
BP2
Q2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Increase or Decrease in Supply
An increase in supply lowers the equilibrium price and raises the equilibrium quantity.
A decrease in supply raises the equilibrium price and lowers the equilibrium quantity.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
0
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
0
S1
D1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
A
Q10
P1
S1
D1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
A
Q10
P1
S1
D1
S2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
A
Q10
P1
S1
D1
S2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
A
Q10
P1
P2
Q2
B
S1
D1
S2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
An Increase in Supply
Quantity
Price
A
Q10
P1
P2
Q2
B
S1
D1
S2
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Supply
Quantity
Price
0
D1
S1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Supply
Quantity
Price
A
0
P1
Q1
D1
S1
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Supply
Quantity
Price
0
P1
Q1
S2
D1
S1
A
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Supply
Quantity
Price
0
P1
Q1
S2
D1
S1
A
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Supply
Quantity
Price
B
Q20
P2
P1
Q1
S2
D1
S1
A
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
A Decrease in Supply
Quantity
Price
Q20
P2
P1
Q1
S2
D1
S1
B
A
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Market Process and Economic Coordination
The market coordinates billions of individual decisions to buy and sell goods and services.
Prices influence all these decisions.
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Relative and Nominal Prices
It is important to distinguish between nominal and real prices.
The nominal price of a good is its money price.
The relative price of a good in terms of another good is its
opportunity cost measured in units of that other good.
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Relative and Nominal Prices
Which price is on the graph?The price on a graph of demand or
supply is the good's relative price.
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Appendix
Algebra of Equilibrium
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Algebra of Equilibrium
Demand CurveIf the demand curve is a straight line, it can
be expressed as:
Qd = a - bPwhere
Qd is the quantity demandedP is the price of the gooda and b are positive numbers that depend on buyers'
tastes, incomes, the prices of complements and substitutes and the other conditions that affect demand
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Algebra of Equilibrium
Supply CurveIf the supply curve is a straight line, it can
be written as:
Qs = c + dP where
Qs is the quantity suppliedP is the pricec and d are numbers that depend on technology, input costs, and the other conditions that affect supply
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Algebra of Equilibrium
EquilibriumAt the equilibrium price P, the quantity
demanded equals the quantity supplied.
In algebraic terms, that means:
Qd = Qs
Copyright © 1999 by Harcourt Brace & Company. All rights reserved.
Algebra of Equilibrium
EquilibriumSubstitute the two equations for Qd and
Qs:
a-bP = c+dPSolving for equilibrium price:
P = (a-c)/(b+d)Solving for equilibrium quantity:
Q = a - b(a-c)/(b+d)
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Supply and Demand
End of Chapter 4