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FORCES OF SUPPLY
AND DEMAND
Chapter 4
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Learning Outcomes
# 4. Explain the key features of competitive
markets.
# 5. Use the supply and demand model to
illustrate and predict the impact of changes in the
economic environment on equilibrium market
prices and quantities.
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Learning Objectives
What is a competitive market?
What determines the demand and supply of a good in
a competitive market?
How supply and demand together set equilibrium
Price and Quantity in the market?
What is the role of prices in allocating scarce
resources in market economies?
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4-4
DEMAND
Quantity demanded: the amount of a good that
buyers are willing and able to purchase
Law of demand: the claim that, other things equal,
the quantity demanded of a good falls when the price
of the good rises
Demand schedule: a table that shows the relationship
between the price of a good and the quantity
demanded
Demand curve: a graph of the relationship between
the price of a good and the quantity demanded
Copyright 2014 by Nelson Education Ltd.
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FIGURE 4.1:
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FIGURE 4.2:
Market Demand
Market demand: The sum of all the individual demands
for a particular good or service
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FIGURE 4.2
(continued)
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TABLE 4.1:
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FIGURE 4.4:
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Active Learning
Demand Curve
Burlingham/Shutterstoc
k
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SUPPLY
Quantity supplied: the amount of a good that
sellers are willing and able to sell
Law of supply: the claim that, other things equal,
the quantity supplied of a good rises when the price of
the good rises
Supply schedule: a table that shows the relationship
between the price of a good and the quantity supplied
Supply curve: a graph of the relationship between
the price of a good and the quantity supplied
Copyright 2014 by Nelson Education Ltd.
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FIGURE 4.5:
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FIGURE 4.6:
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FIGURE 4.6
(continued)
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TABLE 4.2:
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QuickQuiz
Make up an example of a monthly supply schedule for
pizza, and graph the implied supply curve.
Give an example of something that would shift this
supply curve.
Would a change in the price of pizza shift this supply
curve?
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FIGURE 4.8:
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Surplus: quantity
supplied is greater
than quantity
demanded
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Equilibrium
Thinkstock
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TABLE 4.3:
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Changes in Demand
Example: a change in market equilibrium due to a
shift in demand
Suppose that one summer the weather is very hot.
How does this event affect the market for ice cream?
To answer this question, lets follow the three steps.
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FIGURE 4.10:
Increase in Demand
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Changes in Supply
Example: A change in market equilibrium due to a
shift in supply
Suppose that, during another summer, a hurricane
destroys part of the sugar cane crop and drives up the
price of sugar.
How does this event affect the market for ice cream?
Once again, to answer this question, we follow our
three steps.
Copyright 2014 by Nelson Education Ltd.
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FIGURE 4.11:
Decrease in Supply
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FIGURE 4.12:
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TABLE 4.4
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QuickQuiz
On the appropriate diagram, show what happens to the
market for pizza if the price of tomatoes rises.
On a separate diagram, show what happens
to the market for pizza if the price of hamburgers falls.
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