Chapter 3 - Supply and demand. After studying this chapter you will be able to: Define and explain demand in a product or service market; define and explain supply; determine the equilibrium point in the market for a specific good, given data on supply and demand at different price levels; understand what causes shifts in demand and supply; understand how price ceilings cause shortages; understand how price floors cause surpluses.
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• The schedule of quantities of a good or
service that people are willing and able to buy at different prices
– Sometimes a schedule is also called a table
Demand
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D
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D
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D
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D
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D
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D
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D
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D
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D
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D
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D
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Supply
• Is the “schedule” of quantities of a good
or service that people are willing to sell at various prices
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$500 450 400 350 300 250 200 150 100 50
10 20 30 40 50 60 70 Quantity (in thousands)
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$500 450 400 350 300 250 200 150 100 50
10 20 30 40 50 60 70 Quantity (in thousands)
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would move back to the equilibrium price
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$500 450 400 350 300 250 200 150 100 50
10 20 30 40 50 60 70 Quantity (in thousands)
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$500 450 400 350 300 250 200 150 100 50
10 20 30 40 50 60 70 Quantity (in thousands)
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Price
Quantity (in thousands)
50 100 150 200 250 300 350 400 450 500
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Price
Quantity (in thousands)
50 100 150 200 250 300 350 400 450 500
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Price
Quantity (in thousands)
50 100 150 200 250 300 350 400 450 500
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Price
Quantity (in thousands)
50 100 150 200 250 300 350 400 450 500
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Price
Quantity (in thousands)
50 100 150 200 250 300 350 400 450 500
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Quantity of loanable funds (in billions of dollars)
20 18 16 14 12 10 8 6 4 2
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S2
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Hypothetical Demand for and Supply of Loanable Funds
If the demand for loanable funds rises to D2 the interest rate would rise to 9% and the amount of money borrowed would rise to $700 billion
Quantity of loanable funds (in billions of dollars)
20 18 16 14 12 10 8 6 4 2
S
D1
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• In a sense, the price system has failed poor
people
– Many are working 50 or 60 hours a week, but they are still poor
341
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