THEORY OF DEMAND

AND SUPPLY
 A desire to buy good or services accompanied
by ability and willingness to pay
 LAW OF DEMAND
If a product’s price increases, the quantity
demanded for the good will fall and if the
price decrease, the quantity demanded for
the good will increases(c.p)
Demand schedule
shows the quantity demanded of a product at
a various price levels

Demand curve
shows the negative relationship between price
and quantity demanded(downward sloping)
Exhibit 1 Demand Schedule and Demand Curve

(a)

(b)

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 4
 INDIVIDUAL DEMAND
demand curve of an individual or consumer
or a buyer
 MARKET DEMAND
the total quantity demanded by all buyers in
the market
Exhibit 2 Deriving a Market Demand Schedule and
a Market Demand Curve

(a)

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The (b)
Theory
©2001 South-Western College
Publishing 6
 CHANGES IN QUANTITIY DEMANDED
-cause by the price of the product
-movement along the same demand curve

 CHANGES IN DEMAND
-cause by the changes in other factors
-shift of the demand curve
1) Number of buyers
2) Tastes and preferences
3) Income
4) Buyers’ expectations of future prices
5) Prices of related goods
-Complementary goods
-Substitute goods
Exhibit 3 Shifts in the Demand Curve

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 9
Exhibit 5 A Change in Demand versus a Change
in Quantity Demanded

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 10
Exhibit 4 Substitutes and Complements

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 11
 The quantity of goods that is offered for sale
at all possible prices

 LAW OF SUPPLY
If the products’ price increases, the quantity
supplied for the good will increase and if the
price is decrease, the quantity supplied will
also decrease
 SUPPLY SCHEDULE
shows the quantity offered for sale by an
individual sellers at a various price levels

 SUPPLY CURVE
a curve that shows a direct relationship
between price and quantity supplied and vice
versa.
Exhibit 8 A Supply Curve

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 14
 INDIVIDUAL SUPPLY
- the supply by individual seller

 MARKET SUPPLY
- total supply of all sellers
Exhibit 10 Deriving a Market Supply Schedule and a
Market Supply Curve

(a)

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The (b)
Theory
©2001 South-Western College
Publishing 16
 CHANGE IN QUANTITY SUPPLIED
- cause by changes in the price of the
product
- movements along the same supply curve

 CHANGE IN SUPPLY
-cause by changes in factors other than
price
-Shifts by the supply curve
Exhibit 11 Shifts in the Supply Curve

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 18
Exhibit 12 A Change in Supply versus a Change
in Quantity Supplied

Arnold Economics, 5e / Ch. 3

Supply, Demand, and Price: The
Theory
©2001 South-Western College
Publishing 19
1) Number of sellers
2) Technology
3) Resources prices
4) Sellers’ expectations of future prices
5) Taxes and subsidies