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    ECON201 - Chapter 3

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    nicolas lajoie restrepo
    This chapter discusses demand, supply, and price determination in markets. It covers factors that influence demand and supply, how demand and supply curves can shift, and how equilibrium price and quantity are determined by the interaction of supply and demand in a market. The chapter also differentiates between shifts of demand and supply curves versus movements along the curves.

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    ECON201 - Chapter 3

    Uploaded by

    nicolas lajoie restrepo
    8 views21 pages
    This chapter discusses demand, supply, and price determination in markets. It covers factors that influence demand and supply, how demand and supply curves can shift, and how equilibrium price and quantity are determined by the interaction of supply and demand in a market. The chapter also differentiates between shifts of demand and supply curves versus movements along the curves.

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    micro economics ch 3

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    This chapter discusses demand, supply, and price determination in markets. It covers factors that influence demand and supply, how demand and supply curves can shift, and how equilibrium price and quantity are determined by the interaction of supply and demand in a market. The chapter also differentiates between shifts of demand and supply curves versus movements along the curves.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    8 views21 pages

    ECON201 - Chapter 3

    Uploaded by

    nicolas lajoie restrepo
    This chapter discusses demand, supply, and price determination in markets. It covers factors that influence demand and supply, how demand and supply curves can shift, and how equilibrium price and quantity are determined by the interaction of supply and demand in a market. The chapter also differentiates between shifts of demand and supply curves versus movements along the curves.

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    You are on page 1of 21

    Ragan: Economics

    Sixteenth Canadian Edition

    Chapter 3
    Demand, Supply, and Price

    Copyright © 2020 Pearson Canada Inc. 3-1


    Chapter Outline/Learning Objectives

    Section Learning Objectives


    Blank After studying this chapter, you will be able to
    3.1 Demand 1. list the factors that determine the quantity
    demanded of a good.
    2. distinguish between a shift of the demand
    curve and a movement along the demand
    curve.
    3.2 Supply 3. list the factors that determine the quantity
    supplied of a good.
    4. distinguish between a shift of the supply curve
    and a movement along the supply curve.
    3.3 The Determination of Price 5. explain the forces that drive market price to
    equilibrium, and how equilibrium price is
    affected by changes in demand and supply.

    Copyright © 2020 Pearson Canada Inc. 3-2


    3.1 Demand
    • Quantity Demanded
    – The total amount that consumers desire to purchase in
    some time period is called the quantity demanded of
    a product.
    – Quantity bought (or exchanged) refers to actual
    purchases.
    – Quantity demanded is a flow, as opposed to a stock.

    Copyright © 2020 Pearson Canada Inc. 3-3


    Quantity Demanded and Price
    • A basic hypothesis is that - ceteris paribus - the
    price of a product and the quantity demanded are
    negatively related.
    • Why? There are usually several products that can
    satisfy any given want or desire.
    • A reduction in the price of a product means that
    the specific desire can now be satisfied more
    cheaply by buying more of that product.

    Copyright © 2020 Pearson Canada Inc. 3-4


    Demand Schedules and Demand Curves
    (1 of 3)

    Copyright © 2020 Pearson Canada Inc. 3-5


    Demand Schedules and Demand Curves
    (2 of 3)

    • A change in variables other than price will shift


    the demand curve to a new position.
    – Consumer’s income
    – Prices of other goods
    – Consumers’ tastes
    – Population
    – Significant changes in weather

    Copyright © 2020 Pearson Canada Inc. 3-6


    Demand Schedules and Demand Curves
    (3 of 3)

    Copyright © 2020 Pearson Canada Inc. 3-7


    Shifts in the Demand Curve Figure 3-3
    • A rightward shift
    indicates an
    increase in
    demand.
    • A leftward shift
    indicates a
    decrease in
    demand.

    Copyright © 2020 Pearson Canada Inc. 3-8


    Shifts of and Movements Along the Demand
    Curve Figure 3-4
    • A change in
    demand – refers to a
    shift of the entire
    curve.
    • A change in
    quantity demanded
    refers to a movement
    along a given
    demand curve.

    Copyright © 2020 Pearson Canada Inc. 3-9


    3.2 Supply
    • Quantity Supplied
    – The amount of a product that firms desire to sell in
    some time period is called the quantity supplied of
    that product.
    – Quantity supplied is the amount that firms are willing to
    offer for sale and not necessarily the quantity actually
    sold.
    – Quantity supplied is a flow as opposed to a stock.

    Copyright © 2020 Pearson Canada Inc. 3 - 10


    Quantity Supplied and Price
    • A basic hypothesis is that—ceteris paribus—the
    price of the product and the quantity supplied are
    positively related.
    • Why? Producers are interested in making profits.
    • If the price of a particular product rises, then the
    production and sale of this product is more
    profitable.

    Copyright © 2020 Pearson Canada Inc. 3 - 11


    Supply Schedules and Supply Curves
    (1 of 4) Figure 3-5

    Copyright © 2020 Pearson Canada Inc. 3 - 12


    Supply Schedules and Supply Curves
    (2 of 4)

    • A change in any variable other than price will


    shift the supply curve to a new position.
    – Prices of inputs
    – Technology
    – Taxes or subsidies
    – Prices of other products
    – Significant changes in weather
    – Number of suppliers

    Copyright © 2020 Pearson Canada Inc. 3 - 13


    Supply Schedules and Supply Curves (3 of 4)
    Figure 3-6

    Copyright © 2020 Pearson Canada Inc. 3 - 14


    Supply Schedules and Supply Curves (4 of 4)
    Figure 3-7

    • A change in supply = a shift of the entire curve.


    • A change in quantity supplied = a movement
    from one point on a curve to another point

    Copyright © 2020 Pearson Canada Inc. 3 - 15


    3.3 The Determination of Price
    • The Concept of a Market
    – A market may be defined as any situation in which
    buyers and sellers negotiate the transaction of some
    goods or services.
    – Markets may differ in the degree of competition
    among various buyers and sellers.
    – In a perfectly competitive market buyers and sellers
    are price takers.

    Copyright © 2020 Pearson Canada Inc. 3 - 16


    Graphical Analysis of a Market
    • At the equilibrium price, every buyer finds a seller
    and every seller finds a buyer—the market “clears.”

    Copyright © 2020 Pearson Canada Inc. 3 - 17


    Changes in Market Prices (1 of 2)
    • The four possible curve shifts:

    – An increase in demand causes an increase in both the


    equilibrium price and equilibrium quantity.

    – A decrease in demand causes a decrease in both equilibrium


    price and equilibrium quantity.

    – An increase in supply causes a decrease in the equilibrium


    price and an increase in the equilibrium quantity.

    – A decrease in supply causes an increase in the equilibrium


    price and a decrease in the equilibrium quantity.

    Copyright © 2020 Pearson Canada Inc. 3 - 18


    Changes in Market Prices (2 of 2)

    Copyright © 2020 Pearson Canada Inc. 3 - 19


    Applying Economic Concepts 3-1
    • Why Apples but not iPhones?
    • Three conditions must be satisfied for price
    determination in a market to be well described by
    the demand-and-supply model:
    1. Large number of consumers; each one small relative
    to the size of the market.
    2. Large number of producers; each one small relative
    to the size of the market.
    3. Producers must be selling ‘homogeneous’ versions of
    the product.
    Copyright © 2020 Pearson Canada Inc. 3 - 20
    Relative Prices and Inflation
    • The absolute price of a product is the amount of
    money that must be spent to acquire one unit of
    that product.
    • A relative price is the price of one good in terms
    of another.
    • Demand and supply curves are drawn in terms of
    relative prices rather than absolute prices.

    Copyright © 2020 Pearson Canada Inc. 3 - 21

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