Krugman2e_IM_Ch03 - chapter 3 Supply and Demand Chapter...

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chapter 3 Supply and Demand Chapter Objectives Students will learn in this chapter: That the market for a good can be described with two curves: a demand curve and a supply curve. That a competitive market is made up of many buyers and sellers and no buyer or seller can control the price. What the demand curve is and what causes it to shift. What the supply curve is and what causes it to shift. How the supply and demand curves determine a market’s equilibrium price and quantity. How the equilibrium price and quantity of a market are affected by shifts of the demand and supply curve. Chapter Outline Opening Example: The market for coffee is used to introduce supply and demand. Starbucks in 2006 is used to explain how events outside anyone’s control can affect the market price and quantity for coffee. Starbucks and coffee prices are used to explain supply and demand in broad terms. I. Supply and Demand: A Model of a Competitive Market A. Definition: A competitive market is one in which there are many buyers and sellers of a good. B. Definition: The supply and demand model is a model of how a competitive market works. II. The Demand Curve and the Demand Schedule A. Definition: A demand schedule shows how much of a good consumers are willing and able to buy at different prices. B. Definition: A demand curve is a graphical representation of the demand schedule. It shows how much of a good or service consumers want to buy at a given price. C. The demand schedule and demand curve are illustrated in text Figure 3-1, shown on the next page. D. Definition: The quantity demanded is the actual amount consumers are willing to buy at some specific price. 25
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E. Definition: The law of demand says that a higher price of a good, other things equal, leads people to demand a smaller quantity of the good. 1. The law of demand implies that the demand curve will be downward sloping: the higher the price of a good, the less of it consumers want. F. Definition: A shift of the demand curve is a change in the quantity demand- ed at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve. 1. If consumers want more of the good at any given price, the curve shifts to the right. If consumers want to buy less of a good at any given price, the curve shifts to the left. G. Definition: A movement along the demand curve is a change in the quantity demanded of a good that is the result of a change in that good’s price. H. The difference between a shift of the demand curve and movement along the demand curve is illustrated in text Figure 3-3, shown on the next page. 26 C H A P T E R 3 S U P P LY A N D D E M A N D 7.1 7.5 8.1 8.9 10.0 11.5 14.2 7 0 9 11 15 13 17 Quantity of coffee beans (billions of pounds) $2.00 1.75 1.50 1.25 1.00 0.75 0.50 P r ice of coffee beans (pe r pound) P r ice of coffee beans (pe r pound) Quantity of coffee beans demanded (billions of pounds) Demand curve, D 1.75 1.50 1.25 1.00 0.75 0.50 $2.00 Demand Schedule fo r Coffee Beans As price rises, the quantity demanded falls.
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