1. 2 SUPPLY AND DEMAND I: HOW MARKETS WORK

2. 4 The Market Forces of Supply and Demand

11. Catherine’s Demand Schedule

13. Figure 1 Catherine’s Demand Schedule and Demand Curve Copyright © 2004 South-Western Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones $3.00 12 1. A decrease in price ... 2. ... increases quantity of cones demanded.

16. Changes in Quantity Demanded 0 D Price of Ice-Cream Cones Quantity of Ice-Cream Cones A tax that raises the price of ice-cream cones results in a movement along the demand curve. A 8 1.00 B $2.00 4

19. Figure 3 Shifts in the Demand Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in demand Decrease in demand Demand curve, D 3 Demand curve, D 1 Demand curve, D 2

21. Consumer Income Normal Good $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in demand An increase in income... D 1 D 2

22. Consumer Income Inferior Good $3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Decrease in demand An increase in income... D 1 D 2

24. Table 1 Variables That Influence Buyers Copyright©2004 South-Western

27. Ben’s Supply Schedule

29. Figure 5 Ben’s Supply Schedule and Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones $3.00 12 0.50 1. An increase in price ... 2. ... increases quantity of cones supplied.

33. Change in Quantity Supplied 1 5 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C A rise in the price of ice cream cones results in a movement along the supply curve. $3.00

35. Figure 7 Shifts in the Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in supply Decrease in supply Supply curve, S 3 curve, Supply S 1 Supply curve, S 2

36. Table 2 Variables That Influence Sellers Copyright©2004 South-Western

39. SUPPLY AND DEMAND TOGETHER At $2.00, the quantity demanded is equal to the quantity supplied! Demand Schedule Supply Schedule

40. Figure 8 The Equilibrium of Supply and Demand Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 13 Equilibrium quantity Equilibrium price Equilibrium Supply Demand $2.00

41. Figure 9 Markets Not in Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 (a) Excess Supply Quantity of Ice-Cream Cones Supply Demand Quantity demanded Quantity supplied Surplus 4 $2.50 10 2.00 7

44. Figure 9 Markets Not in Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones (b) Excess Demand Supply Demand Quantity supplied Quantity demanded 1.50 10 $2.00 7 4 Shortage

47. Figure 10 How an Increase in Demand Affects the Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Supply Initial equilibrium D D 3. . . . and a higher quantity sold. 2. . . . resulting in a higher price . . . 1. Hot weather increases the demand for ice cream . . . 2.00 7 New equilibrium $2.50 10

49. Figure 11 How a Decrease in Supply Affects the Equilibrium Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Initial equilibrium Demand New equilibrium S 1 S 2 2. . . . resulting in a higher price of ice cream . . . 1. An increase in the price of sugar reduces the supply of ice cream. . . 3. . . . and a lower quantity sold. 2.00 7 $2.50 4

50. Table 4 What Happens to Price and Quantity When Supply or Demand Shifts? Copyright©2004 South-Western