Chapter 3 - chapter 3 > SupplyandDemand 1 of 42 WHAT YOU...

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1 of 42 chapter:   3 >> Supply and Demand
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2 of 42 WHAT YOU WILL LEARN IN THIS CHAPTER What a competitive market is and how it is described by the supply and demand model What the demand curve and supply curve are The difference between movements along a curve and shifts of a curve How the supply and demand curves determine a market’s equilibrium price and equilibrium quantity In the case of a shortage or surplus, how price moves the market back to equilibrium
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3 of 42 Supply and Demand A competitive market : Many buyers and sellers Same good or service The supply and demand model is a model of how a competitive market works. Five key elements: Demand curve Supply curve Demand and supply curve shifts Market equilibrium Changes in the market equilibrium
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4 of 42 Demand Schedule A demand schedule shows how much of a good or service consumers will want to buy at different prices. 7.1 7.5 8.1 8.9 10.0 11.5 14.2 Price of coffee beans (per pound) Quantity of coffee beans demanded (billions of pounds) 1.75 1.50 1.25 1.00 0.75 0.50 $2.00 Demand Schedule for Coffee Beans
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5 of 42 Demand Curve A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price. 7 0 9 11 15 13 17 $2.00 1.75 1.50 1.25 1.00 0.75 0.50 Price of coffee bean (per gallon) Quantity of coffee beans (billions of pounds) Demand curve, D As price rises, the quantity demanded falls
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6 of 42 GLOBAL COMPARISON Pay More, Pump Less… Because of high taxes, gasoline and diesel fuel are more than twice as expensive in most European countries as in the United States. According to the law of demand, Europeans should buy less gasoline than Americans, and they do: Europeans consume less than half as much fuel as Americans, mainly because they drive smaller cars with better mileage. 1.0 1.4 0.6 0.2 $8 7 6 5 4 3 Price of gasoline (per gallon) 0 Italy France Canada United States Japan Germany Spain United Kingdom Consumption of gasoline (gallons per day per capita)
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7 of 42 An Increase in Demand An increase in the population and other factors generate an increase in demand – a rise in the quantity demanded at any given price. This is represented by the two demand schedules - one showing demand in 2002, before the rise in population, the other showing demand in 2006, after the rise in population. 7.1 7.5 8.1 8.9 10.0 11.5 14.2 8.5 9.0 9.7 10.7 12.0 13.8 17.0 in 2002 in 2006 $2.00 1.75 1.50 1.25 1.00 0.75 0.50 Price of coffee beans (per pound) Quantity of coffee beans demanded (billions of pounds) Demand Schedules for Coffee Beans
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8 of 42 An Increase in Demand A shift of the demand curve is a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.
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