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.
PowerPoint Slides by Robert F. Brooker
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Quantity
Demanded
Price
An increase in price
causes a decrease in
quantity demanded.
P1
P0
Q1
PowerPoint Slides by Robert F. Brooker
Q0
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Quantity
Demanded
Price
A decrease in price
causes an increase in
quantity demanded.
P0
P1
Q0
PowerPoint Slides by Robert F. Brooker
Q1
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
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
PowerPoint Slides by Robert F. Brooker
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Demand
An increase in demand
refers to a rightward shift
in the market demand
curve.
Price
P0
Q0
PowerPoint Slides by Robert F. Brooker
Q1
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Demand
A decrease in demand
refers to a leftward shift
in the market demand
curve.
Price
P0
Q1
PowerPoint Slides by Robert F. Brooker
Q0
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
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.
PowerPoint Slides by Robert F. Brooker
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Quantity Supplied
A decrease in price
causes a decrease in
quantity supplied.
Price
P0
P1
Q1
PowerPoint Slides by Robert F. Brooker
Q0
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Quantity Supplied
An increase in price
causes an increase in
quantity supplied.
Price
P1
P0
Q0
PowerPoint Slides by Robert F. Brooker
Q1
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Changes in Supply
• Change in Production Technology
• Change in Input Prices
• Change in the Number of Sellers
PowerPoint Slides by Robert F. Brooker
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Supply
An increase in supply
refers to a rightward shift
in the market supply curve.
Price
P0
Q0
PowerPoint Slides by Robert F. Brooker
Q1
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Supply
A decrease in supply refers
to a leftward shift in the
market supply curve.
Price
P0
Q1
PowerPoint Slides by Robert F. Brooker
Q0
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
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.
PowerPoint Slides by Robert F. Brooker
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Market Equilibrium
Price
D
S
P
Q
PowerPoint Slides by Robert F. Brooker
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Market Equilibrium
Price
D0
D1
S0
An increase in demand
will cause the market
equilibrium price and
quantity to increase.
P1
P0
Q0 Q1
PowerPoint Slides by Robert F. Brooker
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Market Equilibrium
Price
D1
D0
S0
A decrease in demand
will cause the market
equilibrium price and
quantity to decrease.
P0
P1
Q1 Q0
PowerPoint Slides by Robert F. Brooker
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Market Equilibrium
Price
D0
S0
P0
P1
Q0 Q1
PowerPoint Slides by Robert F. Brooker
S1
An increase
in supply
will cause
the market
equilibrium
price to
decrease and
quantity to
increase.
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Market Equilibrium
Price
D0
S1
P1
P0
Q1 Q0
PowerPoint Slides by Robert F. Brooker
S0
A decrease in
supply will
cause the
market
equilibrium
price to
increase and
quantity to
decrease.
Quantity
Copyright (c) 2001 by Harcourt, Inc. All rights reserved.