1. Mehdi Arzandeh, University of Manitoba
PowerPoint Presentation by
Mehdi Arzandeh, University of Manitoba

2. © 2016 McGraw‐Hill Education Limited
Demand, Supply, and Market Equilibrium 3
Appendix to Chapter 3
A3.1 Additional Examples of Supply and Demand
LOA3.1 Illustrate how supply and demand analysis can provide insights on actual economic situations.
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Lettuce
A3.1
Supply shifts left for lettuce
Weather destroys part of the crop
Demand doesn’t change
Consumers still want as much lettuce as before
Equilibrium price rises which will reduce the quantity demanded
LOA3.1
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FIGURE A3-1
The Market for Lettuce S2 S1 P2
Price (per kilo) P1 D1 Q2 Q1
Quantity (per kilos)
LOA3.1
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Exchange Rates
A3.1
Exchange rates – the price of one country’s currency in terms of another country’s currency
Currency appreciation
Currency depreciation
LOA3.1
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FIGURE A3-2
The Market for Euros S1
$1.50
Dollar price of 1 euro
$1.25 D2 D1 Q1 Q2
Quantity of euros
LOA3.1
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Pink Salmon
A3.1
Supply shifts right for pink salmon
New technology
New fishers enter the industry
Demand shifts left for pink salmon
Increases in consumer’s income
Reductions in the price of substitutes
LOA3.1
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FIGURE A3-3
The Market for Pink Salmon S1 S2 P1
Price (per kilo) P2 D1 D2 Q1 Q2
Quantity (in kilos)
LOA3.1
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Gasoline
A3.1
Supply of gasoline decreases
Refinery breakdowns
Mideast politics and warfare
Rising price of oil
Demand for gasoline increases
Consumers’ incomes increased
Low mileage SUVs popular
LOA3.1
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FIGURE A3-4
The Market for Gasoline S2 S1 P2
Price (per liter) P1 D2 D1 Q1 Q2
Quantity (in liters)
LOA3.1
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Sushi
A3.1
Supply shifts right
Increase in the number of sushi bars
Demand shifts right
Consumers’ tastes for sushi increases
LOA3.1
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FIGURE A3-5
The Market for Sushi S1 S2
Price (per kilo) P1 D2 D1 Q1 Q2
Quantity (kilos)
LOA3.1
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Upsloping versus Vertical Supply Curves
A3.2
Upsloping Supply Curves
Any shift in demand will cause both the equilibrium price and quantity to adjust.
Vertical Supply Curves
Any shift in demand will cause only the equilibrium price to change (e.g. a stadium seats)
LOA3.1
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FIGURE A3-6
The Market for Land in Toronto S P2
Price (per kilo) P1 D2 D1 Q0
Quantity (kilos)
LOA3.1
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Preset Prices
A3.2
Preset prices can cause market imbalances
Olympics Figure Skating Finals
Preset price results in a shortage of tickets
Olympics Curling Preliminaries
Preset prices result in a surplus of tickets
LOA3.1
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The Market for Tickets to Olympic Women’s Figure Skating Finals
FIGURE A3-7 P
Figure Skating
Quantity (tickets)
Price (per ticket) S P1 b a P2
Shortage D Q1 Q2
LOA3.1
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The Market for Tickets to Olympic Curling Preliminaries
FIGURE A3-8 P
Curling
Quantity (tickets)
Price (per ticket) S
Surplus a b P2 P1 D Q2 Q1
LOA3.1
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Summary
APPENDIX
LOA3.1 Illustrate how supply and demand analysis can provide insights on actual economic situations.
Change in supply of a product vs demand
The effect of simultaneous changes in supply and demand on the equilibrium price and quantity varies.
The effect of changes in demand for product with fix quantities supplied on equilibrium price not equilibrium quantity
If preset prices are below equilibrium prices, it results in shortages and secondary markets.
Surpluses occur when preset prices are above equilibrium prices.
LOA3.1
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