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Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
N. GREGORY MANKIW
PRINCIPLES OF
ECONOMICS
Eight Edition
The Market Forces
of Supply and Demand
CHAPTER
4
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use. 1
Look for the answers to these questions
• What factors affect buyers’ demand for
goods?
• What factors affect sellers’ supply of goods?
•How do supply and demand determine the
price of a good and the quantity sold?
•How do changes in the factors that affect
demand or supply affect the market price
and quantity of a good?
•How do markets allocate resources?
2
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Markets and Competition
•Market
–A group of buyers and sellers of a
particular good or service
–Buyers as a group
•Determine the demand for the product
–Sellers as a group
•Determine the supply of the product
3
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Markets and Competition
•Competitive market
–Many buyers and many sellers, each has
a negligible impact on market price
•Perfectly competitive market
–All goods are exactly the same
–Buyers and sellers are so numerous that
no one can affect the market price, “Price
takers”
4
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Demand
•Quantity demanded
–Amount of a good that buyers are willing
and able to purchase
•Law of demand
–Other things equal
–When the price of a good rises, the
quantity demanded of the good falls
–When the price falls, the quantity
demanded rises
5
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Sam’s Demand Schedule
Demand schedule:
−A table, shows the
relationship between the
price of a good and the
quantity demanded
−Example: Sam’s demand
for lattes
− Notice that Sam’s
preferences obey the law
of demand.
6
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Price
of lattes
Quantity
of lattes
demanded
$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4
Sam’s Demand Schedule and Demand Curve
7
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Price
of lattes
Quantity
of lattes
demanded
$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 5 10 15
Price of
Lattes
Quantity of
Lattes
Demand
•Market demand
–Sum of all individual demands for a good
or service
–Market demand curve: sum the individual
demand curves horizontally
•To find the total quantity demanded at any
price, we add the individual quantities
8
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Market Demand versus Individual Demand
Suppose Sam and Dean are the only two buyers in
the market for lattes. (Qd= quantity demanded)
9
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
4
6
8
10
12
14
16
Sam’s Qd
2
3
4
5
6
7
8
Dean’s Qd
+
+
+
+
=
=
=
=
6
9
12
15
+ = 18
+ = 21
+ = 24
Market Qd
$0.00
6.00
5.00
4.00
3.00
2.00
1.00
Price
The Market Demand Curve for Lattes
10
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 5 10 15 20 25
P
Q
PQd
(Market)
$0.00 24
1.00 21
2.00 18
3.00 15
4.00 12
5.00 9
6.00 6
Demand Curve Shifters
•The demand curve
–Shows how price affects quantity
demanded, other things being equal
• These “other things” are non-price
determinants of demand
– Things that determine buyers’ demand for
a good, other than the good’s price
• Changes in them shift the D curve…
11
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Demand Curve Shifters
•Number of buyers
–Increase in # of buyers
•Increases quantity demanded at each price
•Shifts D curve to the right
–Decrease in # of buyers
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