blanchard_ch03

# Decrease in demand and increase in supply youve seen

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Unformatted text preview: so the price falls. But a decrease in demand decreases the quantity and an increase in supply increases the quantity, so we can’t predict the direction in which the quantity will change unless we know the magnitudes of the changes in demand and supply. In the example in Fig. 3.10(f ), the quantity does not change. But notice that if demand decreases by slightly more than the amount shown in the figure, the quantity will decrease. And if supply increases by slightly more than the amount shown in the figure, the quantity will increase. Increase in Demand and Decrease in Supply Figure 3.10(h) shows the case in which demand increases and supply decreases. Now, the price rises, and again the direction of the quantity change is uncertain. Review Quiz ◆ What is the effect on the price of an MP3 player (such as an iPod) and the quantity of MP3 players if 1 The price of a PC falls or the price of an MP3 download rises? (Draw the diagrams!) 2 More firms produce MP3 players or electronics workers’ wages rise? (Draw the diagrams!) 3 Any two of the events in questions 1 and 2 occur together? (Draw the diagrams!) Work Study Plan 3.5 and get instant feedback. ◆ Now that you understand the demand and supply model and the predictions that it makes, try to get into the habit of using the model in your everyday life. To see how you might use the model, take a look at Reading Between the Lines on pp. 72–73, which uses the tools of demand and supply to explain the rising price of gasoline in 2008. 9160335_CH03_p053-080.qxd 6/22/09 8:56 AM Page 72 READING BETWEEN THE LINES Demand and Supply: The Price of Gasoline Record Gas Prices Squeeze Drivers Americans feel the pinch as retail gasoline hits all-time high of \$3.51 a gallon CNN Money April 22, 2008 NEW YORK (AP)—Cabbies here complain their take-home pay is thinner than it used to be. Trucking companies across the country are making drivers slow down to conserve fuel. Filling station owners plead that really, really, the skyrocketing prices aren’t their fault. … With gas p...
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## This note was uploaded on 04/04/2012 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue.

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