Microeconomics
Second Edition, Global Edition
EC 101.03
Chapter 4
Demand, Supply,
and Equilibrium
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Learning Objective
4.1 Markets
4.2 How Do Buyers Behave?
4.3 How Do Sellers Behave?
4.4 Supply and Demand in Equilibrium
4.5 What Would Happen if the Government Tried to
Dictate the Price of Gasoline?
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Key Ideas (1 of 3)
1. In a perfectly competitive market, (1) sellers all sell
an identical good or service, and (2) any individual
buyer or any individual seller isn’t powerful enough
on his or her own to affect the market price of that
good or service.
2. The demand curve plots the relationship between the
market price and the quantity of a good demanded
by buyers.
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Key Ideas (2 of 3)
3. The supply curve plots the relationship between
the market price and the quantity of a good
supplied by sellers.
4. The competitive equilibrium price equates the
quantity demanded and the quantity supplied.
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Key Ideas (3 of 3)
5. When prices are not free to fluctuate, markets
fail to equate quantity demanded and quantity
supplied.
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Evidence-Based Economics
How much more
gasoline would people
buy if its price were
lower?
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Markets (1 of 4)
Why do brown eggs cost more than white eggs?
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Markets (2 of 4)
The market price is the price at which buyers and
sellers conduct transactions.
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Markets (3 of 4)
In a perfectly competitive market every buyer pays and
every seller charges the same market price, no buyer or
seller is big enough to influence that market price, and all
sellers sell an identical good or service.
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Markets (4 of 4)
How much would you be willing to pay for this
candy bar?
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How Do Buyers Behave? (1 of 25)
Quantity Demanded
The amount of a good that buyers are willing to
purchase at a given price.
Demand Schedule
A table that reports the quantity demanded at
different prices, holding all else equal.
Demand Curve
Plots the quantity demanded at different prices.
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How Do Buyers Behave? (2 of 25)
How much are you willing to pay for a Snickers Bar?
Demand Schedule
Demand Curve for Snickers Bars Quantity
Price Demanded
$1.50
$1.25 $0.25 20
$1.00 $0.50 15
Price
$0.75 $0.75 10
$0.50
$1.00 5
$0.25
$1.25 3
$0.00
0 5 10 15 20 25 $1.50 1
Quantity
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How Do Buyers Behave? (3 of 25)
Why are some students willing to pay more for an
Snickers bar than others? That is, why isn’t the
price the same for everyone?
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How Do Buyers Behave? (4 of 25)
Market Demand Curve
The sum of the individual demand curves of all the
potential buyers. The market demand curve plots
the relationship between the total quantity
demanded and the market price, holding all else
equal.
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How Do Buyers Behave? (5 of 25)
Market Demand for Snickers
Demand Curve for Demand Curve for Demand Curve for Demand Curve for
Snickers Bars Snickers Bars Snickers Bars Snickers Bars
$1.50 $1.50 $1.50 $1.50
$1.25 $1.25 $1.25 $1.25
$1.00 $1.00 $1.00 $1.00
Price
Price
Price
Price
$0.75 $0.75 $0.75 $0.75
$0.50 $0.50 $0.50 $0.50
$0.25 $0.25 $0.25 $0.25
$0.00 $0.00 $0.00 $0.00
0 10 20 30 0 20 40 0 5 10 15 0 50 100
Quantity Quantity Quantity Quantity
9:00 am class 10:00 am class 11:00 am class Total (Market)
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How Do Buyers Behave? (6 of 25)
Remember your willingness to pay for an Snickers?
What if there was a vending machine right outside
our classroom offering a variety of candy bars all for
$0.25?
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How Do Buyers Behave? (7 of 25)
Shifts of the Demand Curve occur when one of
the following changes:
1. tastes and preferences
2. income and wealth
3. availability and prices of related goods
4. number and scale of buyers
5. buyers’ expectations about the future
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How Do Buyers Behave? (8 of 25)
Demand Curve for Snickers Bars Demand Schedule
$1.50 Quantity
$1.25 Price Demanded
$1.00 $0.25 20
$0.75
Price
$0.50 15
$0.50
$0.25 $0.75 10
$0.00 $1.00 5
0 5 10 15 20 25
$1.25 3
Quantity
$1.50 1
Demand Schedule
Demand Curve for Snickers Bars
$1.50 Price Quantity
Demanded
$1.25
$1.00 $0.25 8
Price
$0.75
$0.50 6
$0.50
$0.25 $0.75 4
$0.00 $1.00 2
0 5 10 15 20 25
Quantity $1.25 1
$1.50 0
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How Do Buyers Behave? (9 of 25)
What if I told you that we will be meeting today for 5
hours and you won’t be allowed to leave the room
for the entire time!
Would that change your willingness to pay for the
Snickers?
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How Do Buyers Behave? (10 of 25)
Demand Curve for Snickers Bars
$1.50
$1.25
$1.00
Price
$0.75
$0.50
$0.25
$0.00
0 5 10 15 20 25 30 35
Quantity
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How Do Buyers Behave? (11 of 25)
Exhibit 4.4 Shifts of the Demand Curve vs. Movement Along
the Demand Curve
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How Do Buyers Behave? (12 of 25)
Exhibit 4.3 Market Demand Curve for Oil
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Evidence-Based Economics (1 of 2)
How much more
gasoline would
people buy if its
price were lower?
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Evidence-Based Economics (2 of 2)
Exhibit 4.5 The Quantity of Gasoline Demanded (per person)
and the Price of Gasoline in Brazil, Mexico, and Venezuela
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How Do Sellers Behave? (13 of 25)
How much would you have to be paid to sell you
smartphone right now in class?
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How Do Sellers Behave? (14 of 25)
Quantity Supplied
The amount of a good that sellers are willing to sell at a
given price.
Supply Schedule
A table that reports the quantity supplied at different
prices.
Supply Curve
Plots the quantity supplied at different prices.
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How Do Sellers Behave? (15 of 25)
Supply Curve for Smartphones
$400
Supply Schedule
$325
Quantity
$250 Price Demanded
Price
$25 5
$175 $100 10
$175 15
$100
$250 20
$325 25
$400 30
$25
0 5 10 15 20 25 30 35
Quantity
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How Do Sellers Behave? (16 of 25)
Why are more of you willing to sell your smartphone
at the higher the price?
Why is the price not the same for everybody?
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How Do Sellers Behave? (17 of 25)
Market Supply Curve
Plots the relationship between the total quantity
supplied and the market price, holding all else
equal.
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How Do Sellers Behave? (18 of 25)
Market Supply for Smartphones
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How Do Sellers Behave? (19 of 25)
Remember what price you required to sell your
smartphone in class?
What if, in addition to the phone buyback, I also was
giving away free smartphones of the latest and best
technology?
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How Do Sellers Behave? (20 of 25)
Shifts of the Supply Curve occur when one of the
following changes:
1. input prices
2. technology
3. number and scale of sellers
4. sellers’ expectations about the future
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How Do Sellers Behave? (21 of 25)
Shift of Supply Curve for Smartphones
Supply Curve for Smartphones
$400
$325
$250
Price
$175
$100
$25
0 5 10 15 20 25 30 35
Quantity
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How Do Sellers Behave? (22 of 25)
Exhibit 4.7 Aggregation of Supply Schedules and Supply Curves
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How Do Sellers Behave? (23 of 25)
What if a new technology made it easier to access
previously unavailable oil reserves (e.g. fracking)?
Would highly efficient, low cost suppliers require
more or less to participate in the market?
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How Do Sellers Behave? (24 of 25)
Shift of Supply Curve for Oil
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How Do Sellers Behave? (25 of 25)
Exhibit 4.9 Shifts of the Supply Curve versus Movement
along the Supply Curve
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Supply and Demand in Equilibrium (1 of 21)
Competitive Equilibrium
The point at which the market comes to an agreement about what
the price will be (competitive equilibrium price) and how much
will be exchanged (competitive equilibrium quantity) at that
price.
Excess Demand
Occurs when consumers want more than suppliers provide at a
given price. This situation results in a shortage.
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Supply and Demand in Equilibrium (2 of 21)
Excess Supply
Occurs when suppliers provide more than
consumers want at a given price. This situation
results in a surplus.
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Supply and Demand in Equilibrium (3 of 21)
Exhibit 4.10 Demand Curve and Supply Curve for Oil
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Supply and Demand in Equilibrium (4 of 21)
Exhibit 4.11 Excess Supply
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Supply and Demand in Equilibrium (5 of 21)
Exhibit 4.12 Excess Demand
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Supply and Demand in Equilibrium (6 of 21)
Exhibit 4.13 A Leftward Shift of the Supply Curve
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Supply and Demand in Equilibrium (7 of 21)
Exhibit 4.14 A Righward Shift of the Supply Curve
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Supply and Demand in Equilibrium (8 of 21)
It’s time to revisit the
question:
Why do brown eggs cost
more than white eggs?
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Supply and Demand in Equilibrium (9 of 21)
Demand Side:
brown eggs are
healthier or organic
What’s wrong with this
picture?
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Supply and Demand in Equilibrium (10 of 21)
Supply Side:
brown eggs are
more expensive to
produce
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Supply and Demand in Equilibrium (11 of 21)
Ready for another one?
Why do the price of
roses increase right
before Valentine’s Day?
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Supply and Demand in Equilibrium (12 of 21)
Change in Demand for Roses
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Supply and Demand in Equilibrium (13 of 21)
Then why doesn’t the
price of beer increase
right before Super Bowl
Sunday?
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Supply and Demand in Equilibrium (14 of 21)
Change in Markets for Roses and Beer
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Supply and Demand in Equilibrium (15 of 21)
Both the Demand Curve and Supply Curve Shift
Right
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Supply and Demand in Equilibrium (16 of 21)
The Demand Curve Shifts Right and the Supply
Curve Shifts Left
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Supply and Demand in Equilibrium (17 of 21)
The Demand Curve Shifts Left and the Supply
Curve Shifts Right
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Supply and Demand in Equilibrium (18 of 21)
Both the Demand Curve and the Supply Curve Shift
Left
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Supply and Demand in Equilibrium (19 of 21)
Effects of Shifts of Demand and Supply
Change in Demand
Change in Supply
Incr. Demand Decr. Demand
Incr. Supply Equil. P ? Equil. P
Equil. Q Equil. Q ?
Decr. Supply Equil. P Equil. P ?
Equil. Q ? Equil. Q
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Supply and Demand in Equilibrium (20 of 21)
Alternative Example: “One more question: Why is
there a parking problem on campus?”
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Supply and Demand in Equilibrium (21 of 21)
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