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- 2. The Theory of Supply
- 3. Table 3.1: Supply Schedule for Cups of Coffee
- 4. Figure 3.1: Supply Curve for Cups of Coffee
- 5. Figure 3.2: An Increase in Supply
- 6. Figure 3.3: A Decrease in Supply
- 7. The Theory of Demand
- 8. Table 3.2: Demand Schedule for Cups of Coffee
- 9. Figure 3.4: Demand Curve for Cups of Coffee
- 10. Figure 3.5: An Increase in Demand
- 11. Figure 3.6: A Decrease in Demand
- 12. The Theory of Market Adjustment
- 13. Figure 3.7: The Market Adjustment Process
- 14. Figure 3.8: Market Equilibrium
- 15. Figure 3.9: Market Adjustment to an Increase in Supply
- 16. Figure 3.10: Market Adjustment to an Increase in Demand
- 17. Table 3.3: Summary of the Market Effects of Shifts in Supply and Demand
- 18. Figure 3.11: Market Adjustment with an Increase in Both Supply and Demand
- 19. Table 3.4: Summary of the Market Effects When Both Supply and Demand Shift
Editor's Notes
- A supply curve shows the same information as the supply schedule. At higher prices, more cups of coffee are offered for sale.
- A supply curve shifts outward (to the right) when sellers decide to offer a higher quantity for sale at the same price (or charge less for a given quantity).
- A supply curve shifts backward (to the left) when sellers decide to offer a lower quantity for sale at the same price (or charge more for a given quantity).
- A demand curve shows the same information as the demand schedule. At higher prices, fewer cups of coffee are demanded.
- A demand curve shifts outward (to the right) when a higher quantity is demanded at the same price (or people are willing to pay more for a given quantity).
- A demand curve shifts backward (to the left) when a lower quantity is demanded at the same price (or people are willing to pay less for a given quantity).
- At a price of $1.40 per cup, we have a situation of surplus (the quantity supplied exceeds the quantity demanded), and there is downward pressure on price. At a price of $0.80 per cup we have a situation of shortage (the quantity demanded exceeds the quantity supplied), and there is upward pressure on price.
- Equilibrium occurs when the quantity demanded equals the quantity supplied. At this point there is no upward or downward pressure on price.
- An increase in supply creates a surplus, and downward pressure on price. The new equilibrium occurs at point E2, with a lower price and a higher quantity sold.
- An increase in demand creates a shortage, and upward pressure on price. The new equilibrium occurs at point E2, with a higher price and a higher quantity sold.
- An increase in both supply and demand moves the equilibrium to point E2. The quantity sold has clearly increased but the effect on price is ambiguous.