1. SUPPLY AND DEMAND:
HOW MARKETS WORK

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

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 8

5. Ben’s Demand Schedule 17

6. 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

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

8. 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

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 25

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

11. 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.

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

13. 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

14. 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 13
Quantity #

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. 36

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

17. 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

18. 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

19. 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