Chapter 3 - Demand and supply. After studying this chapter, you should be able to: Describe the relationship between price and quantity demanded, describe the relationship between price and quantity supplied, diagram demand and supply relationships and identify market equilibrium, | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 3 demand and supply Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: © Sean Locke/iStockphoto 1 Describe the relationship between price and quantity demanded Describe the relationship between price and quantity supplied Diagram demand and supply relationships and identify market equilibrium Describe factors that shift demand and supply Illustrate how changes in demand or supply affect market equilibrium Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 A market exists anywhere there are buyers willing to buy a good and sellers willing to sell it. Could be: A physical location, like a grocery store, gas station, or bakery A cyberspace at sites like eBay, Amazon, Formal or informal Copyright © 2013 John Wiley & Sons, Inc. 3 Markets 3 Demand: The relationship between the price of a good and the quantity of the good that buyers are willing and able to buy at that price, ceteris paribus. Quantity demanded: The amount of a good that buyers are willing and able to buy at a given price, ceteris paribus. Copyright © 2013 John Wiley & Sons, Inc. 4 Demand 4 Copyright © 2013 John Wiley & Sons, Inc. 5 Demand Table and Demand Curve 5 The law of demand: There is an inverse relationship between price and quantity demanded. Copyright © 2013 John Wiley & Sons, Inc. 6 The Law of Demand P Qd Why? Substitution Effect Income Effect 6 The Income Effect implies that changes in the price of a good affect the amount of it that you can afford, which results in a change in quantity demanded, ceteris paribus. The Substitution Effect implies that consumers will respond to a higher price of a good, ceteris paribus, by decreasing their quantity demanded of that good and substituting instead into goods whose prices have not changed. Copyright © 2013 John Wiley & Sons, Inc. 7 Income Effect and Substitution Effect 7 . | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 3 demand and supply Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: © Sean Locke/iStockphoto 1 Describe the relationship between price and quantity demanded Describe the relationship between price and quantity supplied Diagram demand and supply relationships and identify market equilibrium Describe factors that shift demand and supply Illustrate how changes in demand or supply affect market equilibrium Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 A market exists anywhere there are buyers willing to buy a good and sellers willing to sell it. Could be: A physical location, like a grocery store, gas station, or bakery A cyberspace at sites like eBay, Amazon, Formal or informal Copyright © 2013 John Wiley & Sons, Inc. 3 Markets 3 Demand: The relationship between the price of a good and the quantity of
