Transcript Managerial Economics in a Global Economy, 5th Edition by Dominick Salvatore Chapter 1: Appendix The Basics of Demand, Supply, and Equilibrium Prepared by Robert F.

Managerial Economics in a
Global Economy, 5th Edition
by
Dominick Salvatore
Chapter 1: Appendix
The Basics of Demand,
Supply, and Equilibrium
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 1
Law of Demand
• A decrease in the price of a good, all
other things held constant, will cause an
increase in the quantity demanded of
the good.
• An increase in the price of a good, all
other things held constant, will cause a
decrease in the quantity demanded of
the good.
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 2
Change in Quantity
Demanded
Price
An increase in price
causes a decrease in
quantity demanded.
P1
P0
Q1
Prepared by Robert F. Brooker, Ph.D.
Q0
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 3
Change in Quantity
Demanded
Price
A decrease in price
causes an increase in
quantity demanded.
P0
P1
Q0
Prepared by Robert F. Brooker, Ph.D.
Q1
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 4
Changes in Demand
• Change in Buyers’ Tastes
• Change in Buyers’ Incomes
– Normal Goods
– Inferior Goods
• Change in the Number of Buyers
• Change in the Price of Related Goods
– Substitute Goods
– Complementary Goods
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 5
Change in Demand
An increase in demand
refers to a rightward shift
in the market demand
curve.
Price
P0
Q0
Prepared by Robert F. Brooker, Ph.D.
Q1
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 6
Change in Demand
A decrease in demand
refers to a leftward shift
in the market demand
curve.
Price
P0
Q1
Prepared by Robert F. Brooker, Ph.D.
Q0
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7
Law of Supply
• A decrease in the price of a good, all
other things held constant, will cause a
decrease in the quantity supplied of the
good.
• An increase in the price of a good, all
other things held constant, will cause an
increase in the quantity supplied of the
good.
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 8
Change in Quantity Supplied
A decrease in price
causes a decrease in
quantity supplied.
Price
P0
P1
Q1
Prepared by Robert F. Brooker, Ph.D.
Q0
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 9
Change in Quantity Supplied
An increase in price
causes an increase in
quantity supplied.
Price
P1
P0
Q0
Prepared by Robert F. Brooker, Ph.D.
Q1
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 10
Changes in Supply
• Change in Production Technology
• Change in Input Prices
• Change in the Number of Sellers
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 11
Change in Supply
An increase in supply
refers to a rightward shift
in the market supply curve.
Price
P0
Q0
Prepared by Robert F. Brooker, Ph.D.
Q1
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 12
Change in Supply
A decrease in supply refers
to a leftward shift in the
market supply curve.
Price
P0
Q1
Prepared by Robert F. Brooker, Ph.D.
Q0
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 13
Market Equilibrium
• Market equilibrium is determined at the
intersection of the market demand curve
and the market supply curve.
• The equilibrium price causes quantity
demanded to be equal to quantity
supplied.
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 14
Market Equilibrium
Price
D
S
P
Q
Prepared by Robert F. Brooker, Ph.D.
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 15
Market Equilibrium
Price
D0
D1
An increase in demand
will cause the market
equilibrium price and
quantity to increase.
P1
P0
Q0 Q1
Prepared by Robert F. Brooker, Ph.D.
S0
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 16
Market Equilibrium
Price
D1
D0
A decrease in demand
will cause the market
equilibrium price and
quantity to decrease.
P0
P1
Q1 Q0
Prepared by Robert F. Brooker, Ph.D.
S0
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 17
Market Equilibrium
Price
D0
S0
P0
P1
Q0 Q1
Prepared by Robert F. Brooker, Ph.D.
S1
An increase
in supply
will cause
the market
equilibrium
price to
decrease and
quantity to
increase.
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 18
Market Equilibrium
Price
D0
S1
P1
P0
Q1 Q0
Prepared by Robert F. Brooker, Ph.D.
S0
A decrease in
supply will
cause the
market
equilibrium
price to
increase and
quantity to
decrease.
Quantity
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 19