This document provides an overview of microeconomics concepts related to supply and demand. It defines key terms like market forces, competitive markets, quantity demanded/supplied, laws of demand and supply, demand/supply curves and schedules, equilibrium, surpluses and shortages. Factors that can cause shifts in supply and demand are also outlined, such as income, prices of related goods, and input prices. The relationship between supply/demand and equilibrium price/quantity is explained through diagrams and examples.

1. Microeconomics
Chapter 4
The Market Forces of
Supply and Demand

2. Review
Exam 1
Average 76
Range 32 - 92

3. Number
Total
Utility
Marginal Utility
Change in Total
Utility
Average Utility
Total Utility ÷
Number
1 10 10 10.00
2 15 5 7.50
3 19 4 6.33
4 23 4 5.75
5 25 2 5.00

4. market
competitive market
quantity demanded
law of demand
demand schedule
demand curve
normal good
inferior good
substitutes
complements
Key Terms
quantity supplied
law of supply
supply schedule
supply curve
equilibrium
equilibrium price
equilibrium quantity
surplus
shortage
law of supply and demand

5. Market
where
buyers and sellers
interact

6. Supply and Demand
sellers supply
buyers demand

7. Competitive
Market
many buyers and sellers
no one has power to
change price

8. Ceteris Paribus
“all else equal”

9. Quantity Demanded
QD
amount people are
willing and able
to buy

10. Law of Demand
when price goes up
quantity demand goes down
when price goes down
quantity demand goes up

11. Law of Demand
inverse relationship
price up - QD down
price down - QD up

12. Price Quantity
90 1
80 2
70 3
60 4
50 5
40 6
30 7
20 8
10 9
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
Schedule
Demand
Curve
If I have a schedule
I can make a curve
If I have a curve I
can make a
schedule

13. Individual Demand
Market Demand
add up all of the
individual demand curves

14. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Movement along the
Demand Curve
Price changes
demand curve
does not change
quantity demanded
changes

15. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Shift in the Demand Curve

16. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Shift in the Demand Curve
Price does not
change
demand curve
shifts
quantity demanded
changes

17. Shift in Demand
Income
Prices of Related Goods
Tastes
Population & Demographics
Expected Future Prices

18. Why does the
demand curve slope
downwards?
Substitution Effect
Income Effect

19. Substitution Effect
the good is more or less
expensive relative to
other goods that are
substitutes.

20. Income Effect
the effect of a price
change on consumer’s
purchasing power.

21. Complements
goods or services
that are
used together

22. Complements

24. Substitutes
goods or services
that can be used for
the same purpose

26. Normal Good
Demand increases
as income rises and
decreases as income falls

27. Inferior Good
Demand decreases
as income rises and
increases as income falls

29. Quantity Supplied
QS
amount people are
willing and able
to sell

30. Law of Supply
when price goes up
quantity supplied goes up
when price goes down
quantity supplied goes down

31. Law of Supply
direct relationship
price up - QS up
price down - QS down

32. Price Quantity
90 9
80 8
70 7
60 6
50 5
40 4
30 3
20 2
10 1
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Supply
Schedule
Supply
Curve
If I have a schedule
I can make a curve
If I have a curve I
can make a
schedule

33. Individual Supply
Market Supply
add up all of the
individual supply curves

34. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Movement along the
Supply Curve
Price changes
supply curve does
not change
quantity supplied
changes

35. Shift in Supply
Input prices
Technology
Number of Sellers
Expected Future Prices

36. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Shift in the Supply Curve

37. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Equilibrium
where market price is at a level where
Quantity Demanded = Quantity Supplied
Supply
Demand

38. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Surplus
where market price is above equilibrium price
Quantity Demanded < Quantity Supplied
Supply
Demand
QD QS
QS - QD = 7 - 3 = 4
Price is too high
too many pizzas
lower
price

39. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Shortage
where market price is below equilibrium price
Quantity Demanded > Quantity Supplied
Supply
Demand
QD QS
QS - QD = 2 - 8 = -6
Price is too low
not enough pizzas
raise
price

40. Three Steps
1. Does the event shift supply or
demand or both?
2. Which direction is the shift?
3. Diagram new equilibrium