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3 - 1 Copyright McGraw-Hill/Irwin, 2005 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium.

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Presentation on theme: "3 - 1 Copyright McGraw-Hill/Irwin, 2005 Markets Demand Defined Demand Graphed Changes in Demand Supply Defined Supply Graphed Changes in Supply Equilibrium."— Presentation transcript:

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2 3 - 1 Copyright McGraw-Hill/Irwin, 2005 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 3 C H A P T E R

3 3 - 2 Copyright McGraw-Hill/Irwin, 2005 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

4 3 - 3 Copyright McGraw-Hill/Irwin, 2005 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 $ DEMAND DEFINED DEMAND SCHEDULE Various Amounts A Series of Possible Prices …a specified time period …other things being equal PQDQD

5 3 - 4 Copyright McGraw-Hill/Irwin, 2005 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

6 3 - 5 Copyright McGraw-Hill/Irwin, 2005 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

7 3 - 6 Copyright McGraw-Hill/Irwin, 2005 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

8 3 - 7 Copyright McGraw-Hill/Irwin, 2005 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

9 3 - 8 Copyright McGraw-Hill/Irwin, 2005 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

10 3 - 9 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points

11 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points GRAPHING DEMAND

12 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points GRAPHING DEMAND

13 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points GRAPHING DEMAND

14 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ Price of Corn Quantity of Corn CORN Plot the Points GRAPHING DEMAND

15 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN Connect the Points GRAPHING DEMAND

16 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN What if Demand Increases? GRAPHING DEMAND

17 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN D’ Increase in Demand Increase in Quantity Demanded GRAPHING DEMAND

18 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN What if Demand Decreases? GRAPHING DEMAND

19 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ D Price of Corn Quantity of Corn CORN D’ Decrease in Demand Decrease in Quantity Demanded GRAPHING DEMAND

20 Copyright McGraw-Hill/Irwin, 2005 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 Number of Buyers Income – Normal (Superior) & Inferior Goods Prices of Related Goods – Substitutes & Complements – Unrelated Goods Expectations

21 Copyright McGraw-Hill/Irwin, 2005 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 $ PQSQS CORN Various Amounts

22 Copyright McGraw-Hill/Irwin, 2005 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 $ PQSQS CORN Various Amounts A Series of Possible Prices …a specified time period …other things being equal

23 Copyright McGraw-Hill/Irwin, 2005 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

24 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

25 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

26 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

27 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

28 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

29 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN Connect the Points GRAPHING SUPPLY

30 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN What if Supply Increases? GRAPHING SUPPLY

31 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ Price of Corn Quantity of Corn $ PQSQS CORN S’ Increase in Supply Increase in Quantity Supplied GRAPHING SUPPLY

32 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN What if Supply Decreases? GRAPHING SUPPLY

33 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ $ PQSQS Price of Corn Quantity of Corn CORN S’ Decrease in Supply Decrease in Quantity Supplied GRAPHING SUPPLY

34 Copyright McGraw-Hill/Irwin, 2005 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

35 Copyright McGraw-Hill/Irwin, 2005 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 Combining with Demand

36 Copyright McGraw-Hill/Irwin, 2005 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 $ $ B U Y E R S PQDQD BUSHELS OF CORN MARKET DEMAND 2,000 4,000 7,000 11,000 16, S E L E R S 12,000 10,000 7,000 4,000 1,000 PQSQS BUSHELS OF CORN MARKET SUPPLY EQUILIBRIUM Graphically… xx

37 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Market Clearing Equilibrium MARKET DEMAND & SUPPLY

38 Copyright McGraw-Hill/Irwin, 2005 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 Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Surplus At a $4 price more is being supplied than demanded MARKET DEMAND & SUPPLY

39 Copyright McGraw-Hill/Irwin, 2005 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 11 7 S P Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET At a $2 price more is being demanded than supplied Shortage MARKET DEMAND & SUPPLY

40 Copyright McGraw-Hill/Irwin, 2005 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 11 7 S P Q o $ PQDQD $ ,000 4,000 7,000 11,000 16,000 $ ,000 10,000 7,000 4,000 1,000 D PQSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Shortage MARKET DEMAND & SUPPLY Surplus

41 Copyright McGraw-Hill/Irwin, 2005 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

42 Copyright McGraw-Hill/Irwin, 2005 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 Complex Cases Supply Increases; Demand Decreases –Prices Decrease –Quantity Indeterminate Supply Decreases; Demand Increases –Price Increases –Quantity Indeterminate Multiple Shifts…

43 Copyright McGraw-Hill/Irwin, 2005 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 Complex Cases Supply Increases; Demand Increases –Prices Indeterminate –Quantity Increases Supply Decreases; Demand Decreases –Price Indeterminate –Quantity Decreases Multiple Shifts…

44 Copyright McGraw-Hill/Irwin, 2005 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 Government Set Prices Price Ceilings –Shortages –Rationing Problem –Black Markets –Rent Controls Price Floors –Surpluses

45 Copyright McGraw-Hill/Irwin, 2005 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 Government Set Prices Price Ceilings –Shortages –Rationing Problem –Black Markets –Rent Controls Price Floors –Surpluses

46 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 price ceiling and floor Copyright McGraw-Hill/Irwin, 2005 BACK END

47 Copyright McGraw-Hill/Irwin, 2005 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


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