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SCS0980
Introductory Economics
Module 2: An Introduction to Demand
and Supply

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 Course Plan
Module Titles

Module 1 – What is Economics?

Current Focus: Module 2 – An Introduction to Demand and Supply

Module 3 – Consumer and Producers

Module 4 – Market Structure and Efficiency I

Module 5 – Market Structure and Efficiency II

Module 6 – Government in the Market Economy

Module 7 – Factor Markets I

Module 8 – Factor Markets II

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 Course Plan
Module Titles

Module 9 – Canada in the Global Economy

Module 10 – An Introduction to Macroeconomics

Module 11 – The Economy in the Short Run

Module 12 – The Economy in the Long Run

Module 13 – Money, Banking, and Monetary Policy I

Module 14 – Money, Banking, and Monetary Policy II

Module 15 – Macroeconomic Problems and Policies

Module 16 – Exchange Rates and the Balance of Payments

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 Learning Outcomes for this Module – Chapter 3

• List the factors that determine the quantity demanded of a

good.
• Distinguish between a shift of the demand curve and a
movement along the demand curve.
• List the factors that determine the quantity supplied of a
good.
• Distinguish between a shift of the supply curve and a
movement along the supply curve.
• Explain the forces that drive market price to equilibrium, and
how equilibrium price and quantity are affected by changes
in demand and supply.

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 Topics for this Module – Chapter 3

• 3.1 - Demand
• 3.2 - Supply
• 3.3 - The Determination of Price

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 Readings

• MICROECONOMICS (17th Cdn. Ed., 2023) by Ragan

• Chapter 3:
• Demand, Supply, and Price

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Module 2 – Section 1

Demand

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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.

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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.

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Demand Schedules and Demand Curves

Figure 3-1 The Demand for Apples

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Demand Schedules and Demand Curves

• A change in variables other than price will shift the

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

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Demand Schedules and Demand Curves

Figure 3-2 An Increase in the Demand for Apples

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Figure 3-3 Shifts in the Demand Curve

• A rightward shift
indicates an increase
in demand.
• A leftward shift
indicates a decrease
in demand.

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Figure 3-4 Shifts of and Movements Along the
Demand Curve
• 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.

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Module 2 – Section 2

Supply

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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.

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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.

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Supply Schedules and Supply Curves

Figure 3-5 The Supply of Apples

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Supply Schedules and Supply Curves
• A change in any variable other than price will shift the
supply curve to a new position.
– Prices of inputs
– Technology
– Government taxes or subsidies
– Prices of other products
– Significant changes in weather
– Number of suppliers

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Supply Schedules and Supply Curves

Figure 3-6 An Increase in the Supply of Apples

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Shifts of and Movements Along the Supply Curve
• A change in supply is a change in quantity supplied at
every price – a shift of the entire curve.
• A change in quantity supplied refers to a movement
from one point on a supply curve to another point – a
movement along the supply curve.

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Applying Economic Concepts
• Demand and Supply Shocks Created by the COVID-19
Pandemic
– Due to lockdowns the demand for certain goods and
services declined, while it increased in other areas.
– Various restrictions also affected supply of goods and
services in some industries.
– To provide income relief for the millions of Canadians
whose regular incomes had suddenly disappeared, the
government increased its spending financed by
borrowing.
– When governments borrow, they issue new bonds
(IOUs).

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 Module 2 – Section 3

The Determination of Price

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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.

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Graphical Analysis of a Market

• At the equilibrium price

($60), quantity demanded is
equal to quantity demanded
(65000 bushels).
• At any price above $60,
there is excess supply and
thus downward pressure on
price.
• At any price below $60,
there is excess demand and
thus upward pressure on
price. Figure 3-7 The Equilibrium Price of Apples

• Market “clears” at
equilibrium.

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Changes in Market Prices
• 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.

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Changes in Market Prices

Figure 3-8 Shifts in Demand and Supply Curves

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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.

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 Applying Economic Concepts

• 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:
– Large number of consumers; each one small relative to the size of
the market.
– Large number of producers; each one small relative to the size of the
market.
– Producers must be selling ‘homogeneous’ versions of the product.

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