Supply and Demand

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  • Topic: Supply and demand, Demand curve, Consumer theory
  • Pages : 28 (3354 words )
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  • Published : March 23, 2013
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3
>> Supply and Demand
Krugman/Wells Economics

©2009  Worth Publishers

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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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 3 of 42

Demand Schedule


A demand schedule shows how much of a good or service consumers will want to buy at different prices.

Demand Schedule for Coffee Beans
Price of coffee beans (per pound) Quantity of coffee beans demanded (billions of pounds)

$2.00 1.75

7.1 7.5

1.50
1.25 1.00 0.75 0.50

8.1
8.9 10.0 11.5 14.2

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Demand Curve
Price of coffee bean (per gallon)

$2.00 1.75 1.50 1.25 1.00 0.75 0.50

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.

As price rises, the quantity demanded falls

Demand curve, D

0

7

9

11

13

15

17

Quantity of coffee beans (billions of pounds)

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GLOBAL COMPARISON

Pay More, Pump Less…


Price of gasoline (per gallon)

Germany

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.

$8

7
6

United Kingdom Italy France Spain



5
4 3

Japan
Canada United States
0.2 0.6 1.0 1.4

0

Consumption of gasoline (gallons per day per capita)

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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.

Demand Schedules for Coffee Beans
Quantity of coffee beans demanded (billions of pounds)

Price of coffee beans (per pound)

in 2002

in 2006

$2.00 1.75 1.50 1.25 1.00 0.75 0.50

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

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An Increase in Demand
Price of coffee beans (per gallon) $2.00

Increase in population  more coffee drinkers

1.75
1.50 1.25 1.00 0.75 0.50 0

Demand curve in 2006

Demand curve in 2002
7 9 11 13

D

1

D 17

2

15

Quantity of coffee beans (billions of pounds)

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. 8 of 42

Movement Along the Demand Curve
Price of coffee beans (per gallon) $2.00 1.75 1.50 1.25 A C … is not the same thing as a movement along the demand curve B A shift of the demand curve…

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.

1.00
0.75

0.50

D
7 8.1 9.7 10 13

1

D
17

2

0

15

Quantity of coffee beans (billions of pounds)

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Shifts of the Demand Curve
Price

Increase in demand

An “increase in demand” A “decrease in demand”, means a leftward shift of rightward shift...
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