Ch003 - Chapter 3 Supply and Demand: An Introduction...

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Chapter 3 Supply and Demand: An Introduction Overview Chapter 3 introduces markets and provides an overview of the supply and demand model. It begins by comparing central planning and the market as alternative methods of allocating resources. It includes a brief history of economic thought regarding markets and prices. Emphasizing a core principle of the book, the chapter next discusses the concept of equilibrium. It explains how market forces bring the price and quantity back to equilibrium in the case of surpluses and shortages and includes discussion of price controls (price ceilings and floors). Finally, the chapter explains how to use the supply and demand model to explain changes in prices and quantities. Core Principles Equilibrium Principle - The chapter presents the concept of equilibrium in the context of the supply and demand model. Efficiency Principle - Social welfare and market efficiency are presented in the chapter, both in terms of how markets can achieve efficiency and when they do not. Important Concepts Covered Supply and demand model Equilibrium/market equilibrium Cash-On-The-Table Principle Efficiency Excess supply/demand Change in demand versus change in quantity demanded Change in supply versus change in quantity supplied Socially optimal quantity Teaching Objectives After completing this chapter, you want your students to be able to Define demand Identify the 5 factors that change demand Illustrate the effect of a change in any of the 5 factors that affect demand 59
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Explain the difference between a change in demand and a change in quantity demanded Define supply and the 2 factors that change supply Illustrate the effect of a change in either of the 2 factors that affect supply Explain the difference between a change in supply and a change in quantity supplied Define equilibrium in general and in a market Understand the impact of price controls on the market Illustrate the effect of a change in supply, demand, or both on equilibrium price and
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Ch003 - Chapter 3 Supply and Demand: An Introduction...

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