SUPPLY AND DEMAND:
HOW MARKETS WORK
MARKETS AND COMPETITION
• A market is a group of buyers and
sellers of a particular good or service.
MARKETS AND COMPETITION
• Buyers determine demand.

• Sellers determine supply
DEMAND
• Quantity demanded : the amount of a good
that buyers are willing and able to purchase.
• Law of Demand
• The quan...
Cat’s Demand Schedule
Cat’s Demand Curve
Price of
Ice-Cream Cone
$3.00
2.50
1. A decrease
in price ...

2.00
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 ...
Change in Quantity Demanded
• Change in Quantity Demanded
• Movement along the demand curve.
• Caused by a change in the p...
Change in Quantity Demanded
Price of IceCream
Cones

B

$2.0
0

A tax that raises the
price of ice-cream
cones results in ...
SUPPLY
• Quantity supplied is the amount of a good
that sellers are willing and able to sell.
• Law of Supply
• The quanti...
Ben’s Supply Schedule
Price of Ice
cream cone

Qty. of Cones
supplied
Ben’s Supply Curve
Price of
Ice-Cream
Cone
$3.00
1. An
increase
in price...

2.50
2.00
1.50
1.00
0.50

0

1 2

3

4

5

6
...
Change in Quantity Supplied
• Change in Quantity Supplied
• Movement along the supply curve.
• Caused by a change in the p...
Change in Quantity Supplied
Price

C

$3.0
0

A rise in the price
of ice cream
cones results in a
movement along
the suppl...
$

QD QS

200

24

300

16

10

400

10

16

500

4

22

600

0

Airline

1

25

Tickets

600

S

Price $

500
400

350

3...
SUPPLY AND DEMAND TOGETHER
Equilibrium
Qs= Qd
Law of Supply and Demand:
The price of any good adjusts to bring the
quantit...
SUPPLY AND DEMAND TOGETHER
Demand Schedule

Supply Schedule

At $2.00, the quantity demanded is
equal to the quantity supp...
The Equilibrium of Supply and Demand
Price of
Ice-Cream
Cone

Supply

Equilibrium

Equilibrium price

$2.00

Equilibrium
q...
If the price is too high (Qs > Qd)…
Price of
Ice-Cream
Cone

The Price Will Drop!

Supply

$3.00
$2.00

Quantity
Supplied
...
If the price is too low (Qd > Qs)…
Price of
Ice-Cream
Cone

The Price Will Rise!

Supply

$2.00
$1.00

Demand
Quantity
Dem...
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Laws of supply__demand_equilibrium

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Laws of supply__demand_equilibrium

  1. 1. SUPPLY AND DEMAND: HOW MARKETS WORK
  2. 2. MARKETS AND COMPETITION • A market is a group of buyers and sellers of a particular good or service.
  3. 3. MARKETS AND COMPETITION • Buyers determine demand. • Sellers determine supply
  4. 4. DEMAND • Quantity demanded : the amount of a good that buyers are willing and able to purchase. • Law of Demand • The quantity demanded of a good falls when the price of the good rises. # $ Demanded
  5. 5. Cat’s Demand Schedule
  6. 6. Cat’s Demand Curve Price of Ice-Cream Cone $3.00 2.50 1. A decrease in price ... 2.00 1.50 1.00 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. ... increases quantity of cones demanded.
  7. 7. Change in Quantity Demanded • Change in Quantity Demanded • Movement along the demand curve. • Caused by a change in the price of the product.
  8. 8. Change in Quantity Demanded Price of IceCream Cones B $2.0 0 A tax that raises the price of ice-cream cones results in a movement along the demand curve. A 1.00 D 0 4 8 Quantity of Ice-Cream Cones
  9. 9. SUPPLY • Quantity supplied is the amount of a good that sellers are willing and able to sell. • Law of Supply • The quantity supplied of a good rises when the price of the good rises. # supplied $
  10. 10. Ben’s Supply Schedule Price of Ice cream cone Qty. of Cones supplied
  11. 11. Ben’s Supply Curve Price of Ice-Cream Cone $3.00 1. An increase in price... 2.50 2.00 1.50 1.00 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. ... increases quantity of cones.
  12. 12. Change in Quantity Supplied • Change in Quantity Supplied • Movement along the supply curve. • Caused by a change in the price of the product.
  13. 13. Change in Quantity Supplied Price C $3.0 0 A rise in the price of ice cream cones results in a movement along the supply curve. A 1.00 0 S 1 5 Quantity of Ice-Cream Cones
  14. 14. $ QD QS 200 24 300 16 10 400 10 16 500 4 22 600 0 Airline 1 25 Tickets 600 S Price $ 500 400 350 300 200 D 100 0 0 2 4 6 8 10 121314 Quantity # 16 18 22 24 26 28
  15. 15. SUPPLY AND DEMAND TOGETHER Equilibrium Qs= Qd Law of Supply and Demand: The price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
  16. 16. SUPPLY AND DEMAND TOGETHER Demand Schedule Supply Schedule At $2.00, the quantity demanded is equal to the quantity supplied!
  17. 17. The Equilibrium of Supply and Demand Price of Ice-Cream Cone Supply Equilibrium Equilibrium price $2.00 Equilibrium quantity 0 1 2 3 4 5 6 7 8 Demand 9 10 11 12 13 Quantity of Ice-Cream Cones
  18. 18. If the price is too high (Qs > Qd)… Price of Ice-Cream Cone The Price Will Drop! Supply $3.00 $2.00 Quantity Supplied Quantity Demanded 0 1 2 3 4 5 6 7 8 9 Demand 10 11 12 13 Quantity of Ice-Cream Cones
  19. 19. If the price is too low (Qd > Qs)… Price of Ice-Cream Cone The Price Will Rise! Supply $2.00 $1.00 Demand Quantity Demanded Quantity Supplied 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of Ice-Cream Cones

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