Supply and Demand

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>> 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
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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

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