3 Chapter 3 OVERVIEW Basis for Demand Market Demand Function Demand CurveBasis For SupplyMarket Supply FunctionSupply CurveMarket Equilibrium
4 Chapter 3 KEY CONCEPTS demand direct demand utility derived demand demand functiondemand curvechange in the quantity demandedshift in demandSupplysupply functionsupply curvechange in the quantity suppliedshift in supplyequilibriummarket equilibrium pricesurplusshortagecomparative statics analysis
5 Basis for Demand Direct Demand Derived Demand Demand is the quantity customers are willing to buy under current market conditions.Direct demand is demand for consumption.Derived DemandDerived demand is input demand.Firms demand inputs that can be profitably employed.
6 Market Demand Function Determinants of DemandDemand is determined by price, prices of other goods, income, and so on.Industry Demand Versus Firm DemandIndustry demand is subject to general economic conditions.Firm demand is determined by economic conditions and competition.
7 Demand Curve Demand Curve Determination The price-quantity demanded relation.All non-price variables are held constant.
11 Basis For Supply How Output Prices Affect Supply Firms offer supply to make profits.Higher prices boost the quantity supplied.Lower prices cut the quantity supplied.Other Factors That Influence SupplyEverything that affects marginal production costs affects supply.If MC falls, supply rises.If MC rises, supply falls.
12 Market Supply Function Determinants of SupplySupply is determined by price, prices of other goods, technology, and so on.Industry Supply Versus Firm SupplyFirm supply is determined by economic conditions and competition.Industry supply is the horizontal sum of firm supply.
13 Supply Curve Supply Curve Determination The price-quantity supplied relation.All non-price variables are held constant.