SUPPLY AND DEMAND: HOW MARKETS WORK

MARKETS AND COMPETITION A market is a group of buyers and sellers of a particular good or service. 4

MARKETS AND COMPETITION Buyers determine demand. Sellers determine supply. 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 8

Ben’s Demand Schedule 17

Ben’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 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of 2. ... increases quantity of cones demanded. Ice-Cream Cones

Change in Quantity Demanded Movement along the demand curve. Caused by a change in the price of the product. 19

Change in Quantity Demanded Price of Ice-Cream Cones A tax that raises the price of ice-cream cones results in a movement along the demand curve. B $2.00 A 1.00 D 4 8 Quantity of Ice-Cream Cones

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 25

Jerry’s Supply Schedule Price of Ice cream cone Qty. of Cones supplied 29

Jerry’s Supply Curve Price of Ice-Cream Cone $3.00 2.50 1. An increase in price ... 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 2. ... increases quantity of cones.

Change in Quantity Supplied Movement along the supply curve. Caused by a change in the price of the product. 30

Change in Quantity Supplied Price S C $3.00 A rise in the price of ice cream cones results in a movement along the supply curve. A 1.00 Quantity of Ice-Cream Cones 1 5 30

Airline Tickets 600 500 400 300 200 100 Price $ QD QS 200 24 1 300 16 10 400 500 4 22 600 25 Airline Tickets 600 500 400 300 200 100 S Price $ 350 D 0 2 4 6 8 10 12 14 16 18 22 24 26 28 13 Quantity #

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. 36

SUPPLY AND DEMAND TOGETHER Demand Schedule Supply Schedule At $2.00, the quantity demanded is equal to the quantity supplied! 36

The Equilibrium of Supply and Demand Price of Ice-Cream Cone Supply Demand Equilibrium Equilibrium price $2.00 Equilibrium quantity 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of Ice-Cream Cones

If the price is too high (Qs > Qd)… Price of Ice-Cream The Price Will Drop! Cone Supply Demand $3.00 $2.00 Quantity Quantity Supplied Demanded 1 2 3 4 5 6 7 8 9 10 11 12 13 Surplus Quantity of Ice-Cream Cones

If the price is too low (Qd > Qs)… Price of Ice-Cream The Price Will Rise! Cone Supply Demand $2.00 $1.00 Quantity Quantity Demanded Supplied 1 2 3 4 5 6 7 8 9 10 11 12 13 SHORTAGE Quantity of Ice-Cream Cones