MANAGERIAL
th
ECONOMICS 11 Edition
By
Mark Hirschey
Demand and Supply
Chapter 3
Chapter 3
OVERVIEW
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Basis for Demand
Market Demand Function
Demand Curve
Basis For Supply
Market Supply Function
Supply Curve
Market Equilibrium
Chapter 3
KEY CONCEPTS
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demand
direct demand
utility
derived demand
demand function
demand curve
change in the quantity
demanded
shift in demand
Supply
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supply function
supply curve
change in the quantity
supplied
shift in supply
equilibrium
market equilibrium price
surplus
shortage
comparative statics
analysis
Basis for Demand
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Direct Demand
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Demand is the quantity customers are willing
to buy under current market conditions.
Direct demand is demand for consumption.
Derived Demand
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Derived demand is input demand.
Firms demand inputs that can be profitably
employed.
Market Demand Function
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Determinants of Demand
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Demand is determined by price, prices of
other goods, income, and so on.
Industry Demand Versus Firm Demand
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Industry demand is subject to general
economic conditions.
Firm demand is determined by economic
conditions and competition.
Demand Curve
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Demand Curve Determination
The price-quantity demanded relation.
All non-price variables are held constant.
Relation Between the Demand
Curve and Demand Function
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Move along demand curve when price
changes.
Shift to another demand curve when nonprice variables change.
Basis For Supply
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How Output Prices Affect Supply
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Firms offer supply to make profits.
 Higher
prices boost the quantity supplied.
 Lower prices cut the quantity supplied.
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Other Factors That Influence Supply
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Everything that affects marginal
production costs affects supply.
 If
MC falls, supply rises.
 If MC rises, supply falls.
Market Supply Function
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Determinants of Supply
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Supply is determined by price, prices of
other goods, technology, and so on.
Industry Supply Versus Firm Supply
Firm supply is determined by economic
conditions and competition.
 Industry supply is the horizontal sum of
firm supply.
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Supply Curve
Supply Curve Determination
 The price-quantity supplied relation.
 All non-price variables are held
constant.
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Relation Between Supply Curve
and Supply Function
Move along supply curve when price
changes.
 Shift to another curve when non-price
variables change.
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Market Equilibrium
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Surplus and Shortage
Surplus is excess supply.
 Shortage is excess demand.
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Comparative Statics: Changing
Demand
Equilibrium changes with demand shifts.
 Comparative Statics: Changing Supply
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 Equilibrium
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changes with supply shifts.
Comparative Statics: Changing
Demand and Supply