1. 3 - 1
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
Individual
Markets
Demand & Supply
3C H A P T E R

2. 3 - 2
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
MARKETS DEFINED
MARKETS
POTENTIAL
SELLERS
POTENTIAL
BUYERS

3. 3 - 3
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
$5
4
3
2
1
DEMAND DEFINED
DEMAND SCHEDULE
Various Amounts
A Series of Possible Prices
…a specified time period
…other things being equal
P QD
10
20
35
55
80

4. 3 - 4
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
LAW OF DEMAND
• As Price Falls…
…Quantity Demanded Rises
• As Price Rises…
…Quantity Demanded Falls
An inverse relationship exists
between price and quantity
demanded

5. 3 - 5
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
• Diminishing Marginal Utility
LAW OF DEMAND

6. 3 - 6
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect

7. 3 - 7
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
• Substitution Effect

8. 3 - 8
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
• Diminishing Marginal Utility
• Income Effect
• Substitution Effect
LAW OF DEMAND
• Demand Curve
• Individual and Market
Demand

9. 3 - 9
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
DETERMINANTS OF
DEMAND
• Tastes and Preferences
• Number of Buyers
• Incomes
– Normal (Superior) & Inferior Goods
• Prices of Related Goods
– Substitutes & Complements
– Unrelated Goods
• Expectations

10. 3 - 10
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
GRAPHING DEMAND
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
Price of Corn
Quantity of Corn
CORN
Plot the Points
10 20 30 40 50 60 70 80

11. 3 - 11
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
55
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
Price of Corn
Quantity of Corn
CORN
Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND

12. 3 - 12
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
35
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
Price of Corn
Quantity of Corn
CORN
Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND

13. 3 - 13
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
Price of Corn
Quantity of Corn
CORN
Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND

14. 3 - 14
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
Price of Corn
Quantity of Corn
CORN
Plot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND

15. 3 - 15
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
D
Price of Corn
Quantity of Corn
CORN
Connect the Points
10 20 30 40 50 60 70 80
GRAPHING DEMAND

16. 3 - 16
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
What if
Demand
Increases?
GRAPHING DEMAND

17. 3 - 17
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
D’
Increase
in
Demand
Increase
in Quantity
Demanded10
20
35
55
80
30
40
60
80
+
GRAPHING DEMAND

18. 3 - 18
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
What if
Demand
Decreases?
GRAPHING DEMAND

19. 3 - 19
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
P QD
$5
4
3
2
1
10
20
35
55
80
D
Price of Corn
Quantity of Corn
CORN
10 20 30 40 50 60 70 80
--
10
20
40
60
D’
Decrease
in
Demand
Decrease
in Quantity
Demanded
GRAPHING DEMAND

20. 3 - 20
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
SUPPLY DEFINED
SUPPLY SCHEDULE
$1
2
3
4
5
P QS
CORN
Various Amounts
5
20
35
50
60

21. 3 - 21
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
SUPPLY DEFINED
SUPPLY SCHEDULE
$1
2
3
4
5
P QS
CORN
Various Amounts
A Series of Possible Prices
…a specified time period
…other things being equal
5
20
35
50
60

22. 3 - 22
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
LAW OF SUPPLY
• As Price Rises…
…Quantity Supplied Rises
• As Price Falls…
…Quantity Supplied Falls
A direct relationship exists between
price and quantity supplied

23. 3 - 23
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
DETERMINANTS OF
SUPPLY
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers

24. 3 - 24
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
5
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY

25. 3 - 25
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY

26. 3 - 26
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
35
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY

27. 3 - 27
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY

28. 3 - 28
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
GRAPHING SUPPLY

29. 3 - 29
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
S
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the Points
Connect the Points
GRAPHING SUPPLY

30. 3 - 30
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
S
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
What if
Supply
Increases?
GRAPHING SUPPLY

31. 3 - 31
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
S
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
Price of Corn
Quantity of Corn
$5
4
3
2
1
60
50
35
20
5
P QS
CORN
80
70
60
45
30
S’Increase
in
Supply
Increase
in Quantity
Supplied
GRAPHING SUPPLY

32. 3 - 32
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
S
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
What if
Supply
Decreases?
GRAPHING SUPPLY

33. 3 - 33
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
S
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
S’
45
30
20
0
--
Decrease
in
Supply
Decrease
in Quantity
Supplied
GRAPHING SUPPLY

34. 3 - 34
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
S
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P QS
Price of Corn
Quantity of Corn
CORN
Combining
with
Demand
GRAPHING SUPPLY

35. 3 - 35
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
MARKET DEMAND &
SUPPLY
$5
4
3
2
1
10
20
35
55
80
$5
4
3
2
1
60
50
35
20
5
x
200
B
U
Y
E
R
S
P QD
BUSHELS
OF CORN
MARKET
DEMAND
2,000
4,000
7,000
11,000
16,000
x
200
S
E
L
L
E
R
S
12,000
10,000
7,000
4,000
1,000
P QS
BUSHELS
OF CORN
MARKET
SUPPLY
EQUILIBRIUM
Graphically…

36. 3 - 36
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
7
S
P
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$5
4
3
2
1
2,000
4,000
7,000
11,000
16,000
$5
4
3
2
1
12,000
10,000
7,000
4,000
1,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
Market
Clearing
Equilibrium
MARKET DEMAND &
SUPPLY

37. 3 - 37
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
7
S
P
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$5
4
3
2
1
2,000
4,000
7,000
11,000
16,000
$5
4
3
2
1
12,000
10,000
7,000
4,000
1,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKETSurplus
At a $4 price
more is being
supplied than
demanded
MARKET DEMAND &
SUPPLY

38. 3 - 38
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
117
S
P
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$5
4
3
2
1
2,000
4,000
7,000
11,000
16,000
$5
4
3
2
1
12,000
10,000
7,000
4,000
1,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
At a $2 price
more is being
demanded than
supplied
Shortage
MARKET DEMAND &
SUPPLY

39. 3 - 39
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
MARKET EQUILIBRIUM
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity
Demanded
• Changes in Supply
• Changes in Quantity Supplied

40. 3 - 40
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
MARKET EQUILIBRIUM
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity
Demanded
• Changes in Supply
• Changes in Quantity Supplied
Complex Cases
Multiple Shifts

41. 3 - 41
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
• Equilibrium Price & Quantity
• Rationing Function of Prices
• Changes in Demand
• Changes in Quantity
Demanded
• Changes in Supply
• Changes in Quantity Supplied
Chapter
Conclusion
MARKET EQUILIBRIUM

42. Key Terms
market
demand
demand schedule
law of demand
diminishing marginal utility
income effect
substitution effect
demand curve
determinants of demand
normal goods
inferior goods
substitute good
complementary good
change in demand
change in quantity demanded
supply
supply schedule
law of supply
supply curve
determinants of supply
change in supply
change in quantity supplied
surplus
shortage
equilibrium price
equilibrium quantity
rationing function of prices
Copyright McGraw-Hill/Irwin, 2002 BACK END

43. 3 - 43
Copyright McGraw-Hill/Irwin, 2002
Markets
Demand Defined
Demand Graphed
Changes in Demand
Supply Defined
Supply Graphed
Changes in Supply
Equilibrium
Surpluses
Shortages
Key Terms
Previous
Slide
Next
Slide
End
Show
Next:
Chapter 4