Twelfth Edition
Chapter 3
Demand,
Supply,
Chapter
3 and
Market
Equilibrium
Demand,
Supply, and
Market Equilibrium
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Quantity
Demanded
(gallons per week)
0
2
3
5
7
10
14
20
26
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ECONOMICS IN PRACTICE
Have You Bought This Textbook?
One might think that the total number of textbooks,
used plus new, should match class enrollment. After
all, the text is required!
Economists found that the higher the textbook price,
the more text sales fell below class enrollments.
Students found substitutes when textbook prices were
high.
THINKING PRACTICALLY
1.
If you were to construct a demand curve for a required text in a course, where would
that demand curve intersect the horizontal axis?
2.
In the year before a new edition of a text is published, many college bookstores will
not buy the older edition. Given this fact, what do you think happens to the gap
between enrollments and new plus used book sales in the year before a new edition
of a text is expected?
Copyright 2017 Pearson Education, Inc.
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ECONOMICS IN PRACTICE
People Drink Tea on Rainy Days
Tea is a popular beverage among Asians,
Americans, and Europeans, especially during
rainy seasons.
But some economists recently found that the
choices were heavily influenced by temporary
weather changes, production, and other
factors in the region.
While tea has become a common health
drink only some countries have a suitable a
climate to grow tea leaves. Thus, a fall in
supply outweighs the increase in demand,
leading to an increase in equilibrium price,
but a decrease in equilibrium quantity.
THINKING PRACTICALLY
1.
When demand and supply curves shift simultaneously, what would be the factors that
determine the magnitude of the changes in equilibrium price and quantity?
Copyright 2017 Pearson Education, Inc.
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Price
(per Gallon)
$8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Schedule D0
Schedule D1
Quantity Demanded
Quantity Demanded
3
5
7
10
12
15
19
24
30
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a. When income increases, the demand for inferior goods shifts to the left, and the demand for normal
goods shifts to the right.
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b. If the price of hamburger rises, the quantity of hamburger demanded declines; this is a movement along
the demand curve.
The same price rise for hamburger would shift the demand for chicken (a substitute for hamburger) to the
right and the demand for ketchup (a complement to hamburger) to the left.
Copyright 2017 Pearson Education, Inc.
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Total demand in the marketplace is simply the sum of the demands of all the households shopping in a
particular market. It is the sum of all the individual demand curvesthat is, the sum of all the individual
quantities demanded at each price.
Copyright 2017 Pearson Education, Inc.
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Quantity Supplied
(Bushels per Year)
$1.50
1.75
10,000
2.25
20,000
3.00
30,000
4.00
45,000
5.00
45,000
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Price
(per Bushel)
Schedule S0
Schedule S1
Quantity Supplied
(Bushels per Year
Using Old Seed)
Quantity Supplied
(Bushels per Year
Using New Seed)
$1.50
5,000
1.75
10,000
23,000
2.25
20,000
33,000
3.00
30,000
40,000
4.00
45,000
54,000
5.00
45,000
54,000
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Total supply in the marketplace is the sum of all the amounts supplied by all the firms selling
in the market. It is the sum of all the individual quantities supplied at each price.
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Total supply in the marketplace is the sum of all the amounts supplied by all the firms selling
in the market. It is the sum of all the individual quantities supplied at each price.
Copyright 2017 Pearson Education, Inc.
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Market Equilibrium
equilibrium The condition that exists when quantity
supplied and quantity demanded are equal. At equilibrium,
there is no tendency for price to change.
Excess Demand
excess demand or shortage The condition that exists
when quantity demanded exceeds quantity supplied at the
current price.
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Excess Supply
excess supply or surplus The condition that exists when
quantity supplied exceeds quantity demanded at the
current price.
When quantity supplied exceeds quantity demanded at the
current price, the price tends to fall.
When price falls, quantity supplied is likely to decrease,
and quantity demanded is likely to increase until an
equilibrium price is reached where quantity supplied and
quantity demanded are equal.
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Changes in Equilibrium
When supply and demand curves shift, the equilibrium
price and quantity change.
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2.40
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