1. Theory of Supply and Demand

15. Figure 1: The Demand Curve A B Rs4.00 2.00 D 40,000 60,000 Number of Bottles per Month Price per Bottle At Rs2.00 per bottle, 60,000 bottles are demanded (point B). When the price is Rs4.00 per bottle, 40,000 bottles are demanded (point A).

17. Figure 3(a): Movements Along and Shifts of The Demand Curve P 2 Q 2 Q 1 Q 3 P 1 P 3 Quantity Price Price increase moves us leftward along demand curve Price increase moves us rightward along demand curve

19. Figure 2: A Shift of The Demand Curve B C Rs2.00 60,000 80,000 D 1 D 2 An increase in income shifts the demand curve for maple syrup from D 1 to D 2 . Number of Bottles per Month Price per Bottle At each price, more bottles are demanded after the shift

32. Figure 4: The Supply Curve F G 2.00 S 40,000 60,000 Rs4.00 At Rs4.00 per bottle, quantity supplied is 60,000 bottles (point G ). When the price is Rs2.00 per bottle, 40,000 bottles are supplied (point F ). Number of Bottles per Month Price per Bottle

34. Figure 5: A Shift of The Supply Curve S 2 G J S 1 60,000 Rs4.00 80,000 A decrease in transportation costs shifts the supply curve for maple syrup from S 1 to S 2 . Number of Bottles per Month Price per Bottle At each price, more bottles are supplied after the shift

38. Figure 6(a): Changes in Supply and in Quantity Supplied P 2 Q 3 Q 1 Q 2 P 1 P 3 S Quantity Price Price increase moves us rightward along supply curve Price increase moves us leftward along supply curve

43. Figure 7: Market Equilibrium E H J 1.00 Rs3.00 D S 50,000 75,000 25,000 Excess Demand 4. until price reaches its equilibrium value of Rs3.00 . 2. causes the price to rise . . . 3. shrinking the excess demand . . . 1. At a price of Rs1.00 per bottle an excess demand of 50,000 bottles . . . Number of Bottles per Month Price per Bottle

45. Figure 8: Excess Supply and Price Adjustment K L E 3.00 D S Rs5.00 50,000 35,000 65,000 Excess Supply at Rs5.00 3. shrinking the excess supply . . . 2. causes the price to drop, 4. until price reaches its equilibrium value of Rs3.00. Number of Bottles per Month Price per Bottle 1. At a price of Rs5.00 per bottle an excess supply of 30,000 bottles . . .

49. Figure 9 E F' 3.00 D 1 D 2 S Rs4.00 50,000 60,000 1. An increase in demand . . . 3. to a new equilibrium. 5. and equilibrium quantity increases too. 2. moves us along the supply curve . . . Number of Bottles of Maple Syrup per Period Price per Bottle 4. Equilibrium price increases

51. Figure 10: A Shift of Supply and A New Equilibrium E' E 3.00 D Rs5.00 50,000 35,000 S 2 S 1 Number of Bottles Price per Bottle

53. Figure 12: The Market For Oil P 2 D E' P 1 E Q 2 Q 1 S 2 S 1 Barrels of Oil Price per Barrel of Oil

55. Figure 13: The Market For Natural Gas P 4 P 3 F Q 3 Q 4 S D 2 F' D 1 Cubic Feet of Natural Gas Price per Cubic Foot of Natural Gas

56. Figure 11: Changes in the Market for Handheld PCs A B Rs400 D 2003 S 2002 S 2003 D 2002 Rs500 2.45 3.33 1. An increase in supply . . . 2. and a decrease in demand . . . 5. and quantity decreased as well. Millions of Handheld PCs per Quarter Price per Handheld PC 4. Price decreased . . . 3. moved the market to a new equilibrium.

60. Demand for two bedroom rental apartment