Lecture Economics (6/e): Chapter 3 - Stephen L. Slavin
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Chapter 3
Supply and Demand
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
31
Chapter Objectives
• Define and explain demand in a product
or service market
• Define and explain supply
• Determine the equilibrium point in the
market for a specific good, given data on
supply and demand at different price
levels
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
32
Chapter Objectives
• Understand what causes shifts in demand
and supply
• Understand how price ceilings cause
shortages
• Understand how price floors cause
surpluses
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
33
Demand
• The schedule of quantities of a good or
service that people are willing and able to
buy at different prices
– Sometimes a schedule is also called a table
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
34
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
35
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
36
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
37
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
38
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
39
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
310
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
311
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
312
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
313
Hypothetical Daily Demand for Coach Seats on Round
Trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
314
Hypothetical Daily Demand for Coach Seats on Round
trip Weekly Flights between Denver and Chicago
Table 1
$500
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
315
Table 1 is the Demand
Schedule
Table 1
Figure 1 is the Graph of the
Demand Schedule
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
Figure 1
$500
100
50
The line is the
Demand Curve
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
D
70
316
Quantity Demanded is a point
on the Demand Curve
Price and Quantity Demanded
are inversely related
Table 1
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
Figure 1
$500
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
317
Remember, Demand is the
entire schedule or the entire
curve
Table 1
Quantity Demanded is a point
on the Demand Curve
Price QD
450
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
150
57,000
100
67,000
Figure 1
$500
D
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
318
Supply
• Is the “schedule” of quantities of a good
or service that people are willing to sell at
various prices
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
319
Supply is the entire schedule
or the entire curve
Price QS
$500 62,000
$450 59,000
$400 54,000
$350 48,000
$300 40,000
$250 30,000
$200
16,000 $150
7,000 $100
2,000
S
$500
450
400
350
300
250
200
150
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
320
Quantity Supplied is a point on
the curve
Price QS
$500 62,000
$450 59,000
$400 54,000
$350 48,000
$300 40,000
$250 30,000
$200
16,000 $150
7,000 $100
2,000
S
$500
450
400
350
300
250
200
150
100
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
70
321
Demand and Supply Curves
Price QS QD
$500 62,000 1,000
$450 59,000
3,000 $400 54,000
7,000 $350 48,000
12,000 $300 40,000
19,000 $250 30,000
30,000 $200 16,000
45,000 $150 7,000
57,000 $100 2,000
67,000
450
400
350
300
250
200
150
D
100
50
10
Equilibrium price
is the price where
QD = QS
S
$500
20 30 40 50
60
Quantity (in thousands)
70
We can find equilibrium price
and quantity by seeing where the
supply and demand curves cross
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
322
Demand and Supply Curves
Surpluses and Shortages
Price QS QD
$500 62,000 1,000
$450 59,000
3,000 $400 54,000
7,000 $350 48,000
12,000 $300 40,000
19,000 $250 30,000
30,000 $200 16,000
45,000 $150 7,000
57,000 $100 2,000
67,000
450
54,0007,000 = 44,000
400
350
300
250
200
150
D
100
50
10
Equilibrium price = EP
Market price = MP
S
$500
20 30 40 50
60
Quantity (in thousands)
70
MP > EP there is a surplus
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
323
Demand and Supply Curves
Surpluses and Shortages
Price QS QD
$500 62,000 1,000
$450 59,000
3,000 $400 54,000
7,000 $350 48,000
12,000 $300 40,000
19,000 $250 30,000
30,000 $200 16,000
45,000 $150 7,000
57,000 $100 2,000
67,000
450
54,0007,000 = 44,000
400
350
300
250
200
150
D
100
50
10
Equilibrium price = EP
Market price = MP
S
$500
20 30 40 50
60
Quantity (in thousands)
70
A surplus would force sellers to
lower their prices. Eventually,
prices would fall back to the
equilibrium price
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
324
Demand and Supply Curves
Surpluses and Shortages
Price QS QD
$500 62,000 1,000
$450 59,000
3,000 $400 54,000
7,000 $350 48,000
12,000 $300 40,000
19,000 $250 30,000
30,000 $200 16,000
45,000 $150 7,000
57,000 $100 2,000
67,000
450
400
350
300
250
200
150
100
57,0007,000 = 44,000
D
50
10
Equilibrium price = EP
Market price = MP
S
$500
20 30 40 50
60
Quantity (in thousands)
70
MP < EP here is a shortage
Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved.
325
