Managerial Economics in a Global Economy

Chapter 1: Appendix The Basics of Demand, Supply, and Equilibrium

PowerPoint Slides by Robert F. Brooker

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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 Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

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

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

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

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

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 Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Change in Demand
Price

An increase in demand refers to a rightward shift in the market demand curve.

P0

Q0
PowerPoint Slides by Robert F. Brooker

Q1

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Change in Demand
Price

A decrease in demand refers to a leftward shift in the market demand curve.

P0

Q1
PowerPoint Slides by Robert F. Brooker

Q0

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

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 Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Change in Quantity Supplied

Price

A decrease in price causes a decrease in quantity supplied.

P0
P1

Q1
PowerPoint Slides by Robert F. Brooker

Q0

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Change in Quantity Supplied

Price

An increase in price causes an increase in quantity supplied.

P1
P0

Q0
PowerPoint Slides by Robert F. Brooker

Q1

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Changes in Supply
Change in Production Technology Change in Input Prices Change in the Number of Sellers

PowerPoint Slides by Robert F. Brooker

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Change in Supply
Price An increase in supply refers to a rightward shift in the market supply curve.

P0

Q0
PowerPoint Slides by Robert F. Brooker

Q1

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Change in Supply
Price A decrease in supply refers to a leftward shift in the market supply curve.

P0

Q1
PowerPoint Slides by Robert F. Brooker

Q0

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

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

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Market Equilibrium
Price
D S

Q
PowerPoint Slides by Robert F. Brooker

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Market Equilibrium
Price
D0 P1 P0 D1 S0 An increase in demand will cause the market equilibrium price and quantity to increase.

Q0 Q1
PowerPoint Slides by Robert F. Brooker

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Market Equilibrium
Price
D1 P0 P1 D0 S0 A decrease in demand will cause the market equilibrium price and quantity to decrease.

Q1 Q0
PowerPoint Slides by Robert F. Brooker

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Market Equilibrium
Price
D0 S0 S1

P0 P1

An increase in supply will cause the market equilibrium price to decrease and quantity to increase.

Q0 Q1
PowerPoint Slides by Robert F. Brooker

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

Market Equilibrium
Price
D0 S1 S0

P1 P0

A decrease in supply will cause the market equilibrium price to increase and quantity to decrease.

Q1 Q0
PowerPoint Slides by Robert F. Brooker

Quantity

Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.