supply and demand the basics. demand and supply curves demand schedule priceqty $3.50320 $3.70300...
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![Page 1: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/1.jpg)
Supply and Demand
The Basics
![Page 2: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/2.jpg)
Demand and Supply Curves
• Demand Schedule
• Price QTY
• $3.50 320
• $3.70 300
• $3.90 280
• $4.10 260
• $4.30 240
• $4.50 200
• $4.70 160
• $4.90 120
• $5.10 80
• $5.30 40
Supply schedule. Price QTY
$3.50 40
$3.70 100
$3.90 160
$4.10 200
$4.30 240
$4.50 260
$4.70 280
$4.90 300
$5.10 320
![Page 3: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/3.jpg)
What are three tasks that the price system performs for our economy?
1. Rationing of goods and services
2. Determination of wages.
3. Allocation of limited resources.
![Page 4: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/4.jpg)
Laws of Supply and Demand
• What is Demand?• The willingness to buy a
good or service at all prices
• What is the law of Demand?
• If nothing else changes, the quantity demand of a good or service is greater at lower prices than higher.
• What is Supply?• Supply is the quantity of a
good or service a firm is willing to produce at all prices.
• What is the law of Supply?
• If nothing else changes, firms are willing to supply a greater quantity of good or service at higher prices than lower.
![Page 5: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/5.jpg)
Demand Curve for Xbox 360
Pri
ce p
er X
Bo
x
H
G
F
E
C
D
D
B
A
Quantity Demanded in Billions of Xboxes per Year
75 70 65 60 55 50 45 0
200
250
300
350
400
$450
$500
Copyright© 2003 South-Western/Thomson Learning. All rights reserved.
![Page 6: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/6.jpg)
P
ric
e p
er
Xb
ox
Quantity Demanded in Billions of Xboxes per year
F 250
$350
D0
D0
C
D1
D1
Copyright© 2003 South-Western/Thomson Learning. All rights reserved.
Movement along the curve versus shifts in the Demand curve
![Page 7: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/7.jpg)
Determinants of Demand
• Price of other goods ( substitute or complementary)
• Outlook (consumer expectation of future income and prices)
• Income (normal goods versus inferior goods)• Number of potential customers (pop.of market)• Taste (fads or fashions)
![Page 8: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/8.jpg)
Supply Curve for Xbox 360
S
S
a
b
c
e
f
g
h
90 80 70 60 50 40
$500
450
400
350
300
250
Pri
ce
pe
r X
bo
x
Quantity Supplied in Billions of Xboxes per Year
30 0
200
Copyright© 2003 South-Western/Thomson Learning. All rights reserved.
![Page 9: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/9.jpg)
Movements along versus shifts of a Supply Curve
S0
S0
Pri
ce p
er X
Bo
x
Quantity Supplied in Billions of XBox per Year
c
f
S1
S1
310
$400
Copyright© 2003 South-Western/Thomson Learning. All rights reserved.
![Page 10: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/10.jpg)
Determinants of Supply
• Productivity (Improvements in machines and production processes of a good or service)
• Inputs ( Change in the price of inputs required to produce the good or service.)
• Government Actions (Subsidies, Taxes and Regulations)
• Technology (Improvements in machines and production processes of a good or service)
• Outputs ( Price changes in other products produced by the firm)
• Expectations (outlook of future prices and profits)• Size of Industry (Number of firms in the industry)
![Page 11: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/11.jpg)
Equilibrium
• Equilibrium: The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
• Shortage or excess demand: The condition that exists when quantity demanded exceeds quantity supplied at the current price.
• Surplus or excess supply: The condition that exists when quantity supplied exceeds quantity demanded at the current price.
![Page 12: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/12.jpg)
Supply-Demand Market Equilibrium
D
D
G
A S
S
90 80 70 60 50 40
$500
450
400
350
300
250
Pri
ce p
er x
bo
x 36
0
Quantity in Billions of Xbox 360 per Year
30 0
200
E
g
a
Copyright© 2003 South-Western/Thomson Learning. All rights reserved.
![Page 13: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/13.jpg)
Excess Demand
• Excess demand, or shortage, is the condition that exists when quantity demanded exceeds quantity supplied at the current price.
• When quantity demanded exceeds quantity supplied, price tends to rise until equilibrium is restored.
![Page 14: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/14.jpg)
Excess Supply
• Excess supply, or surplus, is the condition that exists when quantity supplied exceeds quantity demanded at the current price.
• When quantity supplied exceeds quantity demanded, price tends to fall until equilibrium is restored.
![Page 15: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/15.jpg)
Changes in Equilibrium
• Increase in demand leads to higher equilibrium price and higher equilibrium quantity.
• Increase in supply leads to lower equilibrium price and higher equilibrium quantity.
![Page 16: Supply and Demand The Basics. Demand and Supply Curves Demand Schedule PriceQTY $3.50320 $3.70300 $3.90280 $4.10260 $4.30240 $4.50200 $4.70160 $4.90120](https://reader035.vdocuments.site/reader035/viewer/2022062308/56649e0e5503460f94af8341/html5/thumbnails/16.jpg)
Changes in Equilibrium
• Decrease in demand demand leads to lower price and lower quantity exchanged.
• Decrease in supply leads to higher price and lower quantity exchanged.