This chapter introduces two Core Principles (Equilibrium, Efficiency) and develops the basic supply and demand model. In this chapter, students should be able to: Describe how the demand and supply curves summarize the behavior of buyers and sellers in the marketplace, discuss how the supply and demand curves interact to determine the equilibrium price and quantity, illustrate how shifts in supply and demand curves cause prices and quantities to change. | Supply and Demand Chapter 3 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. 1 Learning Objectives Describe how the demand and supply curves summarize the behavior of buyers and sellers in the marketplace. Discuss how the supply and demand curves interact to determine equilibrium price and quantity. Illustrate how shifts in supply and demand curves cause prices and quantities to change Explain and apply the Efficiency Principle and the Equilibrium Principle (also called “The No-Cash-on-the-Table Principle). 2 What, How, and For Whom? Every society answers three basic questions WHAT Which goods will be produced? How much of each? HOW Which technology? Which resources are used? FOR WHOM How are outputs distributed? Need? Income? 3 Central Planning versus the Market Central Planning Decisions by individuals or small groups Agrarian societies Government programs Sets prices and goals for the group Individual influence is limited The Market Buyers . | Supply and Demand Chapter 3 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. 1 Learning Objectives Describe how the demand and supply curves summarize the behavior of buyers and sellers in the marketplace. Discuss how the supply and demand curves interact to determine equilibrium price and quantity. Illustrate how shifts in supply and demand curves cause prices and quantities to change Explain and apply the Efficiency Principle and the Equilibrium Principle (also called “The No-Cash-on-the-Table Principle). 2 What, How, and For Whom? Every society answers three basic questions WHAT Which goods will be produced? How much of each? HOW Which technology? Which resources are used? FOR WHOM How are outputs distributed? Need? Income? 3 Central Planning versus the Market Central Planning Decisions by individuals or small groups Agrarian societies Government programs Sets prices and goals for the group Individual influence is limited The Market Buyers and sellers signal wants and costs Resources and goods are allocated accordingly Interaction of supply and demand answer the three basic questions Mixed economies use both the market and central planning 4 Buyers and Sellers in the Market The market for any good consists of all the buyers and sellers of the good Buyers and sellers have different motivations Buyers want to benefit from the good Sellers want to make a profit Market price balances two forces Value buyers derive from the good Cost to produce one more unit of the good 5 Demand A demand curve illustrates the quantity buyers would purchase at each possible price Demand curves have a negative slope Consumers buy less at higher prices Consumers buy more at lower prices $4 $2 8 16 Q P D Demand for Donuts (000s of pieces/day) 6 Demand Slopes Downward Buyers value goods differently The buyer’s reservation price is the highest price an individual is willing to pay for a good Demand reflects the entire market, not one consumer Lower .
