Chapter 2
Supply and Demand
Chapter Outline
2.1
Demand
The Demand Function
The Demand Curve
Summing Demand Curves
2.2
Supply and Demand
The Supply Function
The Supply Curve
Summing Supply Curves
Effects of Government Import Policies on Supply Curves
2.3
Market Equilibrium
Finding the Market Equilibrium
Market Forces That Drive the Market to Equilibrium
2.4
Shocking the Equilibrium: Comparative Statics
Comparative Statics with Discrete (Relatively Large) Changes
Comparative Statics with Small Changes
How Shapes of Demand and Supply Curves Matter
2.5
Elasticities
Demand Elasticity
Elasticity Along the Demand Curve
Other Demand Elasticities
Supply Elasticity
Long Run Versus Short Run
2.6
Effects of a Sales Tax
Two Types of Sales Taxes
Equilibrium Effects of a Specific Tax
How Specific Tax Effects Depend on Elasticities
The Same Equilibrium No Matter Who Is Taxed
The Similar Effects of
Ad Valorem
and Specific Taxes
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Chapter 2
Supply and Demand
5
2.7
Quantity Supplied Need Not Equal Quantity Demanded
Price Ceiling
Price Floor
2.8
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.
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. This is also a good
time to introduce nonlinear demand functions to illustrate the use of calculus. Assigning some of the
quantitative problems at the end of the chapter and collecting them (even if you don’t intend to collect
homework throughout the term) is another good diagnostic.
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
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 Spring '08
 CONSTANTINE
 Supply And Demand

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