II. Demand is willingness to buy.
A. A market is defined as an institution or mechanism which
by bringing together buyers (demanders)
and sellers ( suppliers).
barter1 which is the direct exchange of goods.
C. A modern market brings money and prices into the circular
flow of goods.
Tom Sloan Cartoon Supply and Demand
A. Demand is a schedule of the
amounts of goods and
services consumers are willing and able to buy at
set of prices.
Total demand is the
C. Law of demand::
price and quantity are inversely related.
1. As price goes up, quantity
demanded goes down.
2. As price goes down, quantity
demanded goes up.
E. More is bought as price drops
because of the Income and
Income Effect: as the price of a good drops, consumers
feel richer and
Substitution Effect: as the price of a good drops, it
relative to other goods and
consumers buy more.
and Substitution Effects
5 min. Video
b. Example #2
"Why hasn't economic progress lowered
work hours more?" Tyler Cowen, Hayek Lecture Series
42 min. video
Indifference Curves and Budget Lines Video 11
using budget lines and indifference
F. What determines demand
1. Tastes or
preferences of consumers
2. Number of
3. Incomes of
a. normal (superior) goods such as steak and vacations -
is purchased as income increases.
b. inferior goods such as bread and hamburger - less
is purchased as
5. Price of related
are goods that compete with each other
r such as hot dogs and hamburgers.
If the price of a good increases, the demand for its
are goods that are purchased together
like hot dogs and rolls.
If the price of a good increases,
the demand for its complement will
Latin for all other variables remain same..
So one variable changed at a
G. Changes (shifts) in Demand
1. A decrease in demand shifts the demand curve to the left
2. An increase in demand shifts
the demand curve to the right
Note: Increase is to the right because the x-axis
to the right.
in Economic Demand by Kim Sosin,
Department of Economics of the
of Omaha has good examples.
Demand and Supply Quiz
III. Supply is willingness to sell
A. Supply is a schedule of the amounts of goods
producers are willing and able to
sell at a set of prices.
B. Law of supply: price and quantity
directly related because
price and expected
are directly related
As price goes up, quantity supplied goes up
As price goes down, quantity supplied goes down
C. Supply schedule
What determines supply
1. Product costs
as affected by
b. Resource prices
c. Government involvement with taxes and subsidies
2. Price of related goods
If 2 goods are substitutes, price up for one will
increase supply of the other as companies see
more potential profit
b. Example price of gasoline up, supply of
alternative fuels increases
E. An increase in supply shifts the
supply curve to the right
Explorations in Economic
Dr. Kim Sosin
of the University of Omaha has good examples.
V. Equilibrium is where suppliers and demanders agree
and quantity as depicted by the intersection of their supply and
A. If the price is too high, a surplus results
and price must be
lowered as when the world economic
slowdown in 1999
price to work down supply.
B. If the price is too low, a shortage results.
with toys every Christmas i.e.
C. If they can not agree, as happened with
then the curves do not intersect and the
goods are not sold.
Rationing function of price
1. When competitive forces of supply and demand
an equilibrium, a rationing function of
goods produce to
Economics of finding the right Career "Follow the Skills" video
Disequilibrium yields a Surplus, and Shortage
F. Post WW2 Equilibrium
World Changed, Good Jobs Gone
Economic Normality 1945-2015
Post WW2 International Competitive Adjustment
The Science of Supply and Demand | St. Louis Fed
imposed price ceilings and floors
A. A price ceiling keeps prices from rising (rent
renters but often resulting in a shortage of housing as
investors seek higher returns elsewhere.
B. A price floor keeps prices
from falling (farm price supports)
helps farmers though a surplus often results as more of
supported crops are
Econ in 60 Seconds
:Government Price Controls