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Chapter 2 Demand and Supply

The document discusses demand and supply, including how market equilibrium is reached through the interaction of supply and demand curves. It defines demand and supply, identifies factors that shift the curves, and shows how changes in supply or demand impact equilibrium price and quantity through examples and diagrams.

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86 views21 pages

Chapter 2 Demand and Supply

The document discusses demand and supply, including how market equilibrium is reached through the interaction of supply and demand curves. It defines demand and supply, identifies factors that shift the curves, and shows how changes in supply or demand impact equilibrium price and quantity through examples and diagrams.

Uploaded by

刘文雨杰
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Demand and Supply

CHAPTER 2
Learning Objectives
•The idea of Economic Model.
•How market reaches equilibrium through the
interaction of demand and supply.

© 2020 BY MCGRAW-HILL EDUCATION LTD. 2


Economic Model
An economic model is a
description of some aspect of the
economic world that includes
only those features that are
needed for the purpose at hand.
It is often shown as a graph.
What Is Demand?
Demand is a relationship between a product’s price
and quantity demanded.
 Demand is shown using a schedule or curve.
 The law of demand: price and quantity demanded are

inversely related.
 Market demand is the sum of quantities demanded by all

consumers in a market.

© 2020 BY MCGRAW-HILL EDUCATION LTD. 4


The Individual Demand Curve
FIGURE 2.1

© 2020 BY MCGRAW-HILL EDUCATION LTD. 5


Deriving Market Demand
FIGURE 2.2

© 2020 BY MCGRAW-HILL EDUCATION LTD. 6


Changes in Demand
Changes in demand:
 are shown by shifts in the demand curve
 are caused by changes in demand factors

© 2020 BY MCGRAW-HILL EDUCATION LTD. 7


Changes in Demand
FIGURE 2.3

© 2020 BY MCGRAW-HILL EDUCATION LTD. 8


Demand Factors
Factors that can shift the entire demand curve
◦ Income: normal goods, inferior goods
◦ Prices of related goods: substitutes and complements
◦ Consumer preferences
◦ Expectations: future price and income
◦ Number of buyers

© 2020 BY MCGRAW-HILL EDUCATION LTD. 9


Active Learning: The demand curve

Draw the demand curve for orange juice, D1, and a point A (P1, Q1) on the
demand curve. What happens in each of the following scenarios? Why?

A. The price of apple juice increases


B. The price of orange juice falls
C. Consumers’ income falls (and orange juice is a normal good)
D. Summarize what causes movement along the demand curve, what
causes shift of demand curve.

© 2020 BY MCGRAW-HILL EDUCATION LTD. 10


What Is Supply?
Supply:
 is a relationship between a product’s price and quantity
supplied
 is shown using a schedule or curve

The law of supply states there is a direct relationship


between price and quantity supplied.

© 2020 BY MCGRAW-HILL EDUCATION LTD. 11


The Supply Curve
FIGURE 2.5

© 2020 BY MCGRAW-HILL EDUCATION LTD. 12


Changes in Supply
FIGURE 2.6

© 2020 BY MCGRAW-HILL EDUCATION LTD. 13


Supply Factors (a)
Supply factors include the following:
 Number of producers (an increase causes a rightward
supply shift)
 Resource prices (an increase causes a leftward supply shift)

 Technology (an improvement causes a rightward supply

shift)
 Prices of related products (an increase causes a leftward

supply shift)

© 2020 BY MCGRAW-HILL EDUCATION LTD. 14


Supply Factors (b)
 Changes in nature (for some products, an improvement
causes a rightward supply shift)
 Producer expectations (an expectation of lower prices in

the future causes an immediate rightward supply shift)

© 2020 BY MCGRAW-HILL EDUCATION LTD. 15


Market Equilibrium
FIGURE 2.8

© 2020 BY MCGRAW-HILL EDUCATION LTD. 16


Demand Changes and Equilibrium
FIGURE 2.9

Demand has increased but supply is not changed

© 2020 BY MCGRAW-HILL EDUCATION LTD. 17


Supply Changes and Equilibrium
FIGURE 2.10

Supply has changed but not the demand for the product
18
© 2020 BY MCGRAW-HILL EDUCATION LTD.
Effects of Increases in Demand and
Supply FIGURE 2.11

When the demand increases and the supply also increases, then the equilibrium will shift from
point a to point b
© 2020 BY MCGRAW-HILL EDUCATION LTD. 19
Active Learning: Market Equilibrium
1. Decide whether the event Use the three-step method to analyze the
shifts the supply or demand effects of each event on the equilibrium
curve (or perhaps both). price and quantity of orange juice.
2. Decide in which direction the Event A: A fall in the price of apple juice
curve shifts.
Event B: The price of oranges declines
3. Use the supply-and demand because of an abundant orange crop.
diagram to see how the shift Event C: Events A and B both occur
changes the equilibrium price
and quantity.
simultaneously.

© 2020 BY MCGRAW-HILL EDUCATION LTD. 20


Conclusion
Defined demand – changes in quantity demanded
vs changes in demand; the causes of changes in
demand
Defined supply – changes in quantity supplied vs
changes in supply; the causes of changes in supply
Identified equilibrium as point where demand of a
good equals the supply of the same good.

© 2020 BY MCGRAW-HILL EDUCATION LTD. 21

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