1. W.A. Franke College of Business - Dr. D. Foster
Supply & Demand:
the basics
W.A. Franke College of Business - Dr. D. Foster

2. Demand = Consumers Supply = Producers Law of Demand :
All else equal, the quantity demanded of a good, that consumers are willing to buy and able to pay for, varies inversely with its price.
Supply = Producers
Supply Relationship:
All else equal, the quantity supplied of a good, that producers are willing to sell and able to produce, varies directly with its price.

3. Change in Quantity Demanded (ΔQD)
A change in the price of the good will cause a movement along the curve:
Change in Quantity Demanded (ΔQD)
Price
Quantity

4. Demand
A change in some other relevant factor of demand for the good will cause a shift in the curve:
Change in Demand (ΔD)
Price
Increase in Demand
Decrease in Demand D1 D3 D2
Quantity

5. Change in Quantity Supplied
Supply
A change in the price of the good will cause a movement along the curve:
Change in Quantity Supplied
(ΔQS)
Price
Quantity

6. Supply
A change in some other relevant factor of supply for the good will cause a shift in the curve:
Change in Supply (ΔS)
Price
Decrease in Supply
Increase in Supply S3 S1 S2
Quantity

7. Factors that affect Demand
Income
Tastes and Preferences
Expectations
Others (price of substitute/complement goods; size of market)
Factors that affect Supply
A change in the costs of production
A change in technology
A changes in taxes /subsidies/restrictions
Others (price of other goods; expectations; size of market ).

8. Putting Demand & Supply Together
At P1 a surplus will drive down prices.
Price
Quantity
Supply
Demand P1 P2 P3
Q1 Q2 Q3
At P3 a shortage will drive up prices.
At P2 the market is in equilibrium.

9. Supply & Demand Problems
#1. In the market for oranges, what will happen if there is great weather in Florida and California?
Costs fall  supply increases
Higher output  surplus
Supply
Demand
Price
Quantity Pe Qe
Surplus  lower price
New Supply
New Price
New Quantity
Net effect:
higher Qe lower Pe

10. W.A. Franke College of Business - Dr. D. Foster
Supply & Demand:
the basics
W.A. Franke College of Business - Dr. D. Foster

11. Appendix: Price Controls - Ceilings
Quantity
Price Pe Qe
Supply
Demand
A price ceiling is a maximum (legal) price.
To be “effective” it must be set below Pe
What problem does this cause?
How is it resolved? P* QD QS

12. Appendix: Price Controls - Floors
Quantity
Price Pe Qe
Supply
Demand
A price floor is a minimum (legal) price.
To be “effective” it must be set above Pe
What problem does this cause?
How is it resolved? P* QD QS