1. Chapter 1: Appendix The Basics of Demand, Supply, and Equilibrium
Managerial Economics in a Global Economy, 5th Edition by Dominick Salvatore
Chapter 1: Appendix
The Basics of Demand, Supply, and Equilibrium
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 1

2. Law of Demand
A decrease in the price of a good, all other things held constant, will cause an increase in the quantity demanded of the good.
An increase in the price of a good, all other things held constant, will cause a decrease in the quantity demanded of the good.
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 2

3. Change in Quantity Demanded
Price
An increase in price causes a decrease in quantity demanded. P1 P0
Quantity Q1 Q0
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 3

4. Change in Quantity Demanded
Price
A decrease in price causes an increase in quantity demanded. P0 P1
Quantity Q0 Q1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 4

5. Changes in Demand Change in Buyers’ Tastes Change in Buyers’ Incomes
Normal Goods
Inferior Goods
Change in the Number of Buyers
Change in the Price of Related Goods
Substitute Goods
Complementary Goods
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 5

6. Change in Demand
An increase in demand refers to a rightward shift in the market demand curve.
Price P0
Quantity Q0 Q1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 6

7. Change in Demand
A decrease in demand refers to a leftward shift in the market demand curve.
Price P0
Quantity Q1 Q0
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7

8. Law of Supply
A decrease in the price of a good, all other things held constant, will cause a decrease in the quantity supplied of the good.
An increase in the price of a good, all other things held constant, will cause an increase in the quantity supplied of the good.
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 8

9. Change in Quantity Supplied
A decrease in price causes a decrease in quantity supplied.
Price P0 P1
Quantity Q1 Q0
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 9

10. Change in Quantity Supplied
An increase in price causes an increase in quantity supplied.
Price P1 P0
Quantity Q0 Q1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10

11. Changes in Supply Change in Production Technology
Change in Input Prices
Change in the Number of Sellers
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 11

12. Change in Supply
An increase in supply refers to a rightward shift in the market supply curve.
Price P0
Quantity Q0 Q1
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 12

13. Change in Supply
A decrease in supply refers to a leftward shift in the market supply curve.
Price P0
Quantity Q1 Q0
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 13

14. Market Equilibrium
Market equilibrium is determined at the intersection of the market demand curve and the market supply curve.
The equilibrium price causes quantity demanded to be equal to quantity supplied.
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 14

15. Market Equilibrium Price D S P Quantity Q
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 15

16. Market Equilibrium Price D0 D1 S0
An increase in demand will cause the market equilibrium price and quantity to increase. Q1 P1 P0
Quantity Q0
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 16

17. Market Equilibrium Price D1 D0 S0
A decrease in demand will cause the market equilibrium price and quantity to decrease. Q0 P0 P1 Q1
Quantity
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 17

18. Market Equilibrium Price
An increase in supply will cause the market equilibrium price to decrease and quantity to increase. D0 S0 S1 P0 Q1 P1
Quantity Q0
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 18

19. Market Equilibrium Price
A decrease in supply will cause the market equilibrium price to increase and quantity to decrease. D0 S1 S0 P1 Q1 Q0 P0
Quantity
Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 19