1. CHAPTER 3 Demand and Supply

2. Chapter 3 Demand, Supply and Relative Prices
Demand and supply determine relative prices.
The word “price” means relative price. Price is an opportunity cost.
If we predict a price will fall, we mean its price will fall relative to the average price of other goods and services.

3. Calculation of Relative Prices
Relative price is usually calculated by dividing the price of a good in question by a price index.
The most commonly used price index is the CPI (Consumer Price Index).
The CPI represents the “average” price of consumer goods in a particular month or year.

4. Demand
The quantity demanded of a good or service is the amount that consumers plan to (or are willing to) buy in a given period of time at a particular (relative) price.
Quantity demanded is measured as an amount per unit time: pizzas per day, pizzas per week, or pizzas per year.

5. The Law of Demand
Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.
The phrase “other things being equal” is sometimes abbreviated with the Latin phrase ceteris paribus (cet. par.).
Thus, when we say price changes, we mean relative price changes.

6. Demand Schedule and Demand Curve
A demand schedule lists the quantities demanded at each different price when all the other influences on consumers’ planned purchases remain the same.
A demand curve is a graph of the demand schedule.

7. Demand Schedule Price Quantity Demanded a .50 9 b 1.00 6 c 1.50 4
(dollars per CD-R) (millions of CD-Rs per week) a b c d e

8. Demand Curve 3.00 Price (dollar per CD-R) 2.50 2.00 1.50 1.00 .50
Quantity (millions of CD-Rs per week)

9. Demand Curve e d c b a 3.00 Price (dollar per CD-R) 2.50 2.00 1.50
1.00 a
.50
Quantity (millions of CD-Rs per week)

10. Demand Curve e d c b a 3.00 Price (dollar per CD-R) 2.50 2.00 1.50
1.00
Demand
for CD-Rs a
.50
Quantity (millions of CD-Rs per week)

11. Factors That Influence Demand
Price (of the good in question)
Prices of related goods
Income
Expected future price
Population
Preferences (or Tastes)

12. Price
If the price of the good rises, the quantity demanded falls (a movement up along the demand curve).
If the price of the good falls, the quantity demanded rises (a movement down along the demand curve).

13. Prices of Related Goods
A substitute is a good that can be used in place of another good. If the price of a CD-RW rises, the demand for CD-Rs rises (demand curve shifts out to the right) .
A complement is a good that is used in conjunction with another good. If the price of a CD burner rises, the demand for CD-Rs falls (demand curve shifts in to the left).

14. Example-Decrease in Price of a Complement
Original demand schedule New demand schedule
CD Burner $ CD Burner $100
Price Quantity Price Quantity
(dollars (millions of CD-Rs (dollars (millions of CD-Rs
per CD-R) per week) per CD-R) per week)) a b c d e
Assume the original price of
A CD Burner is $300. The
demand schedule shows
the Price-Quantity
relationship for CD-Rs.

15. Example-Decrease in Price of a Complement
Original demand schedule New demand schedule
CD Burner $ CD Burner $100
Price Quantity Price Quantity
(dollars (millions of CD-Rs (dollars (millions of CD-Rs
per CD-R) per week) per CD-R) per week))
a a’
b b’
c c’
d d’
e e’

16. Demand Before Price of Complement Decreases
3.00
Price (dollar per CD-R)
2.50 e
2.00 d
1.50 c
1.00 b
Demand for CD-Rs
(CD Burner $300)
.50 a
Quantity (millions of CD-Rs per week)

17. Demand after Price of Complement Decreases
3.00
Price (dollar per CD-R)
2.50 e e'
Demand for CD-Rs
(CD Burner $100)
2.00 d d'
1.50 c c'
1.00 b b'
Demand for CD-Rs
(CD Burner $300)
.50 a a'
Quantity (millions of CD-Rs per week)

18. Income
Normal goods are those for which demand increases as income increases (demand curve shifts out to the right).
Inferior goods are those for which demand decreases as income increases (demand curve shifts in to the left).
The terms normal and inferior do not necessarily refer to the quality of the product

19. Expected Future Price
If the price of a good is expected to rise in the future and if the good can be stored, people will often substitute over time by buying more of the good today.
Demand for the good increases (demand curve shifts out to the right). This is sometimes called speculation.

20. Population
Other things remaining the same, the larger the population, the greater is the demand for all goods and services (demand curve shifts out to the right).
The smaller the population, the smaller is the demand for all goods and services (demand curve shifts in to the left).

21. Preferences (or Tastes)
Preferences are an individual’s attitudes toward goods and services.
Different people have different preferences and will therefore have different demands for a particular good or service.

22. Summary of Changes in Demand
The demand for CD-Rs
Decreases if:
The price of a substitute falls
The price of a complement rises
Income falls (since CD-R is a normal good)
The price of a CD-R is expected to fall in the future
The population decreases
Preferences decrease

23. Summary of Changes in Demand
The demand for CD-Rs
Increases if:
The price of a substitute rises
The price of a complement falls
Income rises (since CD-R is a normal good)
The price of a CD-R is expected to rise in the future
The population increases
Preferences increase

24. Movement Along Versus a Shift of the Demand Curve
If the price of a good changes but everything else remains the same, there is a movement along the demand curve.
If the price of a good remains constant but some other influence on buyers’ plans changes, there is a shift of the demand curve.

25. A Change in Quantity Demanded Versus a Change in Demand
A movement along the demand curve shows a change in the quantity demanded.
A shift of the demand curve shows a change in demand.

26. A Change in the Quantity Demanded Versus a Change in Demand
Price D0
Quantity

27. A Change in the Quantity Demanded Versus a Change in Demand
Price
Decrease in
quantity
demanded
Increase in
quantity
demanded D0
Quantity

28. A Change in the Quantity Demanded Versus a Change in Demand
Price P0 D0 Q0
Quantity

29. A Change in the Quantity Demanded Versus a Change in Demand
Price P1 P0 D0 Q1 Q0
Quantity

30. A Change in the Quantity Demanded Versus a Change in Demand
Price P1 P0 P2 D0 Q1 Q0 Q2
Quantity

31. A Change in the Quantity Demanded Versus a Change in Demand
Price D0
Quantity

32. A Change in the Quantity Demanded Versus a Change in Demand
Price
Increase in
demand D1 D0
Quantity

33. A Change in the Quantity Demanded Versus a Change in Demand
Price
Decrease in
Increase in
demand
demand D1 D0 D2
Quantity

34. A Change in the Quantity Demanded Versus a Change in Demand
Price
Decrease in
quantity
demanded
Decrease in
Increase in
demand
demand
Increase in
quantity
demanded D1 D0 D0 D2
Quantity

35. Supply If a firm supplies a good or service, the firm
Has the resources and technology to produce it,
Can profit from producing it, and
Has made a definite plan to produce it and sell it.

36. Supply
The amount of a good or service that producers plan to (or are willing to) sell during a given time period at a particular price is called the quantity supplied.
Quantity supplied is not necessarily the same as the quantity actually sold (which depends on the interaction of supply and demand).

37. The Law of Supply
Other things remaining the same, the higher the price of a good, the greater is the quantity supplied.
Increasing opportunity cost is the reason behind the law of supply.

38. Supply Schedule and Supply Curve
A supply schedule lists the quantities supplied at each different price when all other influences on the amount firms plan to sell remain the same.
A supply curve is a graph of a supply schedule.

39. Supply Schedule Price Quantity
(dollars per CD-R) (millions of CD-Rs per week) a b c d e

40. Supply Curve 3.00 Price (dollar per CD-R) 2.50 2.00 1.50 1.00 .50
Quantity (millions of CD-Rs per week)

41. Supply Curve e d c b a 3.00 Price (dollar per CD-R) 2.50 2.00 1.50
1.00 b
.50 a
Quantity (millions of CD-Rs per week)

42. Supply Curve e d c b a 3.00 Supply of CD-Rs Price (dollar per CD-R)
2.50 e
2.00 d
1.50 c
1.00 b
.50 a
Quantity (millions of CD-Rs per week)

43. Other Influences on Supply Besides Price
Prices of factors of production
Prices of other goods produced
Expected future prices
The number of suppliers
Technology

44. Prices of Factors of Production
A change in the price of a factor of production causes supply to change by changing production costs.
For example, suppose the product is automobiles and the price of labor increases. Automakers will cut back on their supply (the supply curve will shift to the left).

45. Prices of Related Goods Produced - Substitutes
Two goods are substitutes in production if the same factors of production can be used to produce each good. Examples are sedans and sports cars.
If the price of sports cars rises, the quantity supplied of sports cars rises (move up the supply curve) and the supply of sedans falls (the supply curve of sedans shifts to the left).

46. Prices of Related Goods Produced - Complements
Two goods are complements in production if they are produced together. Examples are beef and cowhide.
If the price of cowhide rises, the quantity supplied of cowhide rises (move up along the supply curve) and the supply of beef rises (the supply curve of beef shifts to the right).

47. Expected Future Prices
If producers expect the price of a good to be higher in the future (and the good can be stored), they may substitute over time.
This means they will offer a smaller quantity of the good for sale today so the current supply decreases (the supply curve shifts to the left) .

48. The Number of Suppliers
Other things remaining the same, the larger the number of producers supplying a good, the larger is the supply of the good (the supply curve shifts to the right).

49. Technology
New technologies that enable producers to use less (or cheaper) factors of production lower the cost of production and increase supply (the supply curve shifts to the right).

50. Supply Response to Change in Technology
Original supply schedule
Old technology
Price Quantity
(dollars (millions of CD-Rs
per CD-R) per week) a b c d e

51. Supply Response to Change in Technology
Original supply schedule New supply schedule
Old technology New technology
Price Quantity Price Quantity
(dollars (millions of CD-Rs (dollars (millions of CD-Rs
per CD-R) per week) per CD-R) per week)
a a'
b b'
c c'
d d'
e e'

52. Supply Response to Change in Technology
Original supply schedule New supply schedule
Old technology New technology
Price Quantity Price Quantity
(dollars (millions of CD-Rs (dollars (millions of CD-Rs
per CD-R) per week) per CD-R) per week)
a a'
b b'
c c'
d d'
e e'

53. Supply Response to Change in Technology
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50 e
2.00 d
1.50 c
1.00 b
.50 a
Quantity (millions of CD-Rs per week)

54. Supply Response to Change in Technology
Supply of CD-Rs
(old technology)
3.00
Supply of CD-Rs
(new technology)
Price (dollar per CD-R)
2.50 e e'
2.00 d d'
1.50 c c'
1.00 b b'
.50 a a'
Quantity (millions of CD-Rs per week)

55. Movement Along Versus a Shift of the Supply Curve
If the price of a good changes but everything else influencing supply remains constant, there is a movement along the supply curve.
If the price of a good remains the same but another influence on supply changes, there is a shift of the supply curve.

56. A Change in Quantity Supplied Versus a Change in Supply
A movement along the supply curve shows a change in quantity supplied.
A shift of the supply curve shows a change in supply.

57. A Change in the Quantity Supplied Versus a Change in Supply
Price
Quantity

58. A Change in the Quantity Supplied Versus a Change in Supply
Increase in
quantity
supplied S0
Price
Decrease in
quantity
supplied
Quantity

59. A Change in the Quantity Supplied Versus a Change in Supply
Price P0 Q0
Quantity

60. A Change in the Quantity Supplied Versus a Change in Supply
Price P1 P0 Q0 Q1
Quantity

61. A Change in the Quantity Supplied Versus a Change in Supply
Price P1 P0 P2 Q2 Q0 Q1
Quantity

62. A Change in the Quantity Supplied Versus a Change in Supply
Price
Increase in
supply
Quantity

63. A Change in the Quantity Supplied Versus a Change in Supply
Price
Decrease in
Increase in
supply
supply
Quantity

64. A Change in the Quantity Supplied Versus a Change in Supply
Increase in
quantity
supplied S2 S0 S0 S1
Price
Decrease in
Increase in
supply
supply
Decrease in
quantity
supplied
Quantity

65. Price Determination
The price of a good regulates the quantities demanded and supplied.
There is one price, and only one price, at which the quantity demanded equals the quantity supplied.
Price is the rationing (or regulating) mechanism

66. Shortages
If the price is too low, the quantity demanded exceeds the quantity supplied. People are willing to pay more for the good.
To eliminate this shortage, sellers will raise the price, increasing the quantity supplied and reducing the quantity demanded.

67. Surpluses
If the price is too high, the quantity supplied exceeds the quantity demand. Inventories pile up.
To eliminate this surplus, sellers will lower the price, reducing quantity supplied and increasing quantity demanded.

68. Market Equilibrium
The market equilibrium price is the price at which the quantity demanded equals the quantity supplied.
The market equilibrium quantity is the quantity bought and sold at the equilibrium price.
At market equilibrium, both buyers and sellers are satisfied. This is not true at any other price or quantity.

69. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week)

70. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week) –9

71. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week) –9 –3

72. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week) –9 –3

73. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week) –9 –3

74. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week) –9 –3

75. Market Equilibrium Quantity Quantity Shortage(–)
Price demanded supplied or surplus(+)
(dollars
per CD-R) (millions of CD-Rs per week) –9 –3

76. Market Equilibrium 3.00 Price (dollar per CD-R) 2.50 2.00 1.50 1.00
Quantity (millions of CD-Rs per week)

77. Market Equilibrium 3.00 Price (dollar per CD-R) 2.50 2.00 1.50 1.00
Demand
for CD-Rs
.50
Quantity (millions of CD-Rs per week)

78. Market Equilibrium 3.00 Supply of CD-Rs Price (dollar per CD-R) 2.50
2.00
1.50
1.00
Demand
for CD-Rs
.50
Quantity (millions of CD-Rs per week)

79. Market Equilibrium 3.00 Supply of CD-Rs Price (dollar per CD-R) 2.50
2.00
1.50
1.00
Demand
for CD-Rs
.50
Quantity (millions of CD-Rs per week)

80. A Shortage Forces the Price Up
If demand exceeds supply, sellers will raise price, decreasing quantity demanded.

81. A Surplus Forces the Price Down
If supply exceeds demand, sellers will see their inventories of unsold goods piling up and will cut price to sell them.

82. Market Equilibrium 3.00 Supply of CD-Rs Price (dollar per CD-R) 2.50
Surplus of
2 million CD-Rs
at $2 a CD-R
3.00
Supply of CD-Rs
Price (dollar per CD-R)
2.50
2.00
Equilibrium
1.50
1.00
Demand
for CD-Rs
.50
Shortage of 3 million CD-Rs at $1 a CD-R
Quantity (millions of CD-Rs per week)

83. The Best Deal Available for Buyers and Sellers
The equilibrium price is the best deal available for buyers and sellers.
This is the price at which trade takes place.

84. Predicting Changes in Price and Quantity
The theory we have just studied provides us with a powerful way of analyzing influences on prices and the quantities bought and sold.
A change in price must be caused by either a change in demand or a change in supply.

85. A Change in Demand
An increase in demand shifts the demand curve up and to the right.
The new equilibrium price and quantity are higher.

86. Predicting Changes in Price and Quantity
A Change in Demand
What would happen to the price and quantity of CD-Rs if the price of a CD Burner falls from $300 to $100.

87. The Effects of a Change in Demand
Quantity demanded
Price (millions of CD-Rs per week)
(dollars Quantity supplied
per CD-R ) CD Burner $300 CD Burner $100 (millions of CD-Rs per week)

88. The Effects of a Change in Demand
Quantity demanded
Price (millions of CD-Rs per week)
(dollars Quantity supplied
per CD-R ) CD Burner $300 CD Burner $100 (millions of CD-Rs per week)

89. The Effects of a Change in Demand
Quantity demanded
Price (millions of CD-Rs per week)
(dollars Quantity supplied
per CD-R ) CD Burner $300 CD Burner $100 (millions of CD-Rs per week)

90. The Effects of a Change in Demand
Quantity demanded
Price (millions of CD-Rs per week)
(dollars Quantity supplied
per CD-R ) CD Burner $300 CD Burner $100 (millions of CD-Rs per week)

91. The Effects of a Change in Demand
Supply of CD-Rs
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

92. The Effects of a Change in Demand
Supply of CD-Rs
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

93. The Effects of a Change in Demand
Supply of CD-Rs
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

94. A Change in Supply
An increase in supply shifts the supply curve down and to the right.
The new equilibrium price is lower, but the equilibrium quantity is higher.

95. The Effects of a Change in Supply
Quantity supplied
Price (millions of CD-Rs per week)
(dollars Quantity demanded old new
per CD-R ) (millions of CD-Rs per week) technology technology

96. The Effects of a Change in Supply
Quantity supplied
Price (millions of CD-Rs per week)
(dollars Quantity demanded old new
per CD-R ) (millions of CD-Rs per week) technology technology

97. The Effects of a Change in Supply
Quantity supplied
Price (millions of CD-Rs per week)
(dollars Quantity demanded old new
per CD-R ) (millions of CD-Rs per week) technology technology

98. The Effects of a Change in Supply
Quantity supplied
Price (millions of CD-Rs per week)
(dollars Quantity demanded old new
per CD-R ) (millions of CD-Rs per week) technology technology

99. The Effects of a Change in Supply
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
.50
Demand for CD-Rs
Quantity (millions of CD-Rs per week)

100. The Effects of a Change in Supply
Supply of CD-Rs
(old technology)
Supply of CD-Rs
(new technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
.50
Demand for CD-Rs
Quantity (millions of CD-Rs per week)

101. The Effects of a Change in Supply
Supply of CD-Rs
(old technology)
Supply of CD-Rs
(new technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
.50
Demand for CD-Rs
Quantity (millions of CD-Rs per week)

102. A Change in Both Demand and Supply
Both curves shift.
The direction in which price and quantity change will depend on how each curve shifts.

103. Demand and Supply Change in the Same Direction
If demand and supply increase, both the demand and supply curves shift out.
The new equilibrium quantity will be higher.
The new equilibrium price may be higher, lower, or it may remain the same.

104. The Effects of an Increase in Both Demand and Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) CD Burner old CD Burner new
$300 technology $ technology

105. The Effects of an Increase in Both Demand and Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) CD Burner old CD Burner new
$300 technology $ technology

106. The Effects of an Increase in Both Demand and Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) CD Burner old CD Burner new
$300 technology $ technology

107. The Effects of an Increase in Both Demand and Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) CD Burner old CD Burner new
$300 technology $ technology

108. The Effects of an Increase in Both Demand and Supply
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

109. The Effects of an Increase in Both Demand and Supply
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

110. The Effects of an Increase in Both Demand and Supply
Supply of CD-Rs
(old technology)
Supply of CD-Rs
(new technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

111. A Decrease in Both Demand and Supply
When both demand and supply decrease, the quantity decreases and the price increases, decreases, or remains constant

112. The Effects of a Decrease in Both Demand and Supply
Supply of CD-Rs
(wage=$9)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Quantity (millions of CD-Rs per week)

113. The Effects of a Decrease in Both Demand and Supply
Supply of CD-Rs
(wage=$10)
Supply of CD-Rs
(wage=$9)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Quantity (millions of CD-Rs per week)

114. The Effects of a Decrease in Both Demand and Supply
Supply of CD-Rs
(wage=$10)
Supply of CD-Rs
(wage=$9)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
1.00
Demand for CD-Rs
(CD Burner $100)
.50
Demand for CD-Rs
(CD Burner $300)
Quantity (millions of CD-Rs per week)

115. Demand and Supply Change in Opposite Directions
Suppose supply increases but demand decreases.
Price falls.
The direction in which quantity changes will depend on the magnitude of the shifts in the two curves.

116. The Effects of an Decrease in Demand and an Increase in Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) MP3 download old MP3 download new
free technology $ technology

117. The Effects of an Decrease in Demand and an Increase in Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) MP3 download old MP3 download new
free technology $ technology

118. The Effects of an Decrease in Demand and an Increase in Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) MP3 download old MP3 download new
free technology $ technology

119. The Effects of an Decrease in Demand and an Increase in Supply
Original Quantities New Quantities
(millions of CD-Rs per week) (millions of CD-Rs per week)
Price Quantity Quantity Quantity Quantity
(dollars demanded supplied demanded supplied
per CD-R ) MP3 download old MP3 download new
free technology $ technology

120. A Decrease in Demand and an Increase in Supply
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
Demand for CD-Rs
(MP3 Download free)
1.00
.50
Quantity (millions of CD-Rs per week)

121. A Decrease in Demand and an Increase in Supply
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50
2.00
1.50
Demand for CD-Rs
(MP3 Download free)
1.00
.50
Demand for CD-Rs
(MP3 Download $20)
Quantity (millions of CD-Rs per week)

122. A Decrease in Demand and an Increase in Supply
Supply of CD-Rs
(old technology)
3.00
Price (dollar per CD-R)
2.50
Supply of CD-Rs
(new technology)
2.00
1.50
Demand for CD-Rs
(MP3 Download free)
1.00
.50
Demand for CD-Rs
(MP3 Download $20)
Quantity (millions of CD-Rs per week)

123. The Effects of an Increase in Demand and a Decrease in Supply
When demand increases and supply decreases, the price rises and the quantity increases, decreases, or remains constant.

124. An Increase in Demand and a Decrease in Supply
3.00
Price (dollar per CD-R)
2.50
Supply of CD-Rs
(wage=$9)
2.00
1.50
1.00
.50
Demand for CD-Rs
(MP3 download $20)
Quantity (millions of CD-Rs per week)

125. An Increase in Demand and a Decrease in Supply
3.00
Price (dollar per CD-R)
2.50
Supply of CD-Rs
(wage=$9)
2.00
1.50
Demand for CD-Rs
(MP3 download free)
1.00
.50
Demand for CD-Rs
(MP3 download $20)
Quantity (millions of CD-Rs per week)

126. An Increase in Demand and a Decrease in Supply
Supply of CD-Rs
(wage=$10)
3.00
Price (dollar per CD-R)
2.50
Supply of CD-Rs
(wage=$9)
2.00
1.50
Demand for CD-Rs
(MP3 download free)
1.00
.50
Demand for CD-Rs
(MP3 download $20)
Quantity (millions of CD-Rs per week)