Chapter 2
Supply and Demand
Chapter Outline
2.1 Demand
The Demand Curve
The Demand Function
Summing Demand Curves
2.2 Supply and demand
The Supply Curve
The Supply Function
Summing Supply Curves
Effects of Government Import Policies on Supply Curves
2.3 Market Equilibrium
Using a Graph to Determine the Equilibrium
Using Math to Determine the Equilibrium
Market Forces Drive the Market to Equilibrium
2.4 Shocking the Equilibrium
Effects of a Shift in the Demand Curve
Effects of a Shift in the Supply Curve
2.5
Effects of Government Interventions
Policies That Shift Supply Curves
Policies That Cause Demand to Differ from Supply
Why Supply Need Not Equal Demand
2.6
When to Use the SupplyandDemand Model
Teaching Tips
This chapter reviews basic supply and demand concepts from the principles level. Your interactions with
the class from the first session or two should give you a good indication of how much class time to spend
on it. If it has been some time since their principles course, students may need fairly consistent prompting
to recall the basic supplyanddemand model. For example, many will remember that there is a Law of
Demand, but won’t remember the law itself. Encourage students in the strongest terms to read the chapter
carefully. It is well worth the time spent at this stage to make sure everyone has solid recognition of these
basic tools and concepts.
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Part 1
Teaching Aids
When reviewing demand, be sure students are clear on the difference between movement along the curve
and a shift of the entire curve. Two points should be helpful. First, note to them that both in Equation 2.3
and on the graph in Figure 2.1, price is the only independent variable present. Thus, only price can cause
a movement along the curve. Second, underscore the role of other variables. After compiling a list of the
factors that can shift the demand curve (once they get started, the class as a group should be able to
provide you with this list), I ask what factors are held constant along a single demand curve. Surprisingly,
this question is often greeted by a protracted silence. By realizing that it is the same factors that shift the
curve when they change, students develop a more solid understanding. The text makes this point well in
Equations 2.2 and 2.3.
The introduction of demand curves and equations is a good opportunity to review the basic geometric
concepts of slope and intercept. This doesn’t take much time, as most students can recognize slope and
intercept of a written equation, but there is sometimes a surprising lack of connection between what
appears in an equation and the resulting graph. Draw a demand curve and tell the class that the slope of
this curve is –2. Then ask the students what will happen in the graph if the slope increases to –4. Although
it is likely that several, perhaps most students will know immediately, some will not. I try to use the simple
algebra and geometry in these early chapters to help me to gauge what portion of the class is likely to
struggle when the material gets tougher. Assigning some of the quantitative problems at the end of the
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 Spring '08
 dutta
 Supply And Demand

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