Microeconomics

Second Edition, Global Edition

EC 101.03

Chapter 4
Demand, Supply,
and Equilibrium

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Learning Objective

4.1 Markets

4.2 How Do Buyers Behave?

4.3 How Do Sellers Behave?

4.4 Supply and Demand in Equilibrium

4.5 What Would Happen if the Government Tried to

Dictate the Price of Gasoline?

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Key Ideas (1 of 3)

1. In a perfectly competitive market, (1) sellers all sell

an identical good or service, and (2) any individual
buyer or any individual seller isn’t powerful enough
on his or her own to affect the market price of that
good or service.

2. The demand curve plots the relationship between the

market price and the quantity of a good demanded
by buyers.
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Key Ideas (2 of 3)

3. The supply curve plots the relationship between

the market price and the quantity of a good
supplied by sellers.

4. The competitive equilibrium price equates the

quantity demanded and the quantity supplied.

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Key Ideas (3 of 3)

5. When prices are not free to fluctuate, markets

fail to equate quantity demanded and quantity

supplied.

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Evidence-Based Economics

How much more

gasoline would people
buy if its price were
lower?

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Markets (1 of 4)

Why do brown eggs cost more than white eggs?

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Markets (2 of 4)

The market price is the price at which buyers and

sellers conduct transactions.

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Markets (3 of 4)
In a perfectly competitive market every buyer pays and
every seller charges the same market price, no buyer or
seller is big enough to influence that market price, and all
sellers sell an identical good or service.

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Markets (4 of 4)

How much would you be willing to pay for this

candy bar?

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How Do Buyers Behave? (1 of 25)

Quantity Demanded
The amount of a good that buyers are willing to
purchase at a given price.

Demand Schedule
A table that reports the quantity demanded at
different prices, holding all else equal.

Demand Curve

Plots the quantity demanded at different prices.

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How Do Buyers Behave? (2 of 25)

How much are you willing to pay for a Snickers Bar?

Demand Schedule
Demand Curve for Snickers Bars Quantity
Price Demanded
$1.50
$1.25 $0.25 20
$1.00 $0.50 15
Price

$0.75 $0.75 10
$0.50
$1.00 5
$0.25
$1.25 3
$0.00
0 5 10 15 20 25 $1.50 1
Quantity

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How Do Buyers Behave? (3 of 25)

Why are some students willing to pay more for an

Snickers bar than others? That is, why isn’t the

price the same for everyone?

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How Do Buyers Behave? (4 of 25)

Market Demand Curve

The sum of the individual demand curves of all the
potential buyers. The market demand curve plots
the relationship between the total quantity
demanded and the market price, holding all else
equal.

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How Do Buyers Behave? (5 of 25)

Market Demand for Snickers

Demand Curve for Demand Curve for Demand Curve for Demand Curve for
Snickers Bars Snickers Bars Snickers Bars Snickers Bars
$1.50 $1.50 $1.50 $1.50
$1.25 $1.25 $1.25 $1.25
$1.00 $1.00 $1.00 $1.00
Price

Price

Price

Price
$0.75 $0.75 $0.75 $0.75
$0.50 $0.50 $0.50 $0.50
$0.25 $0.25 $0.25 $0.25
$0.00 $0.00 $0.00 $0.00
0 10 20 30 0 20 40 0 5 10 15 0 50 100
Quantity Quantity Quantity Quantity
9:00 am class 10:00 am class 11:00 am class Total (Market)

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How Do Buyers Behave? (6 of 25)

Remember your willingness to pay for an Snickers?

What if there was a vending machine right outside

our classroom offering a variety of candy bars all for

$0.25?

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How Do Buyers Behave? (7 of 25)
Shifts of the Demand Curve occur when one of
the following changes:

1. tastes and preferences

2. income and wealth

3. availability and prices of related goods

4. number and scale of buyers

5. buyers’ expectations about the future

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How Do Buyers Behave? (8 of 25)
Demand Curve for Snickers Bars Demand Schedule
$1.50 Quantity
$1.25 Price Demanded
$1.00 $0.25 20
$0.75
Price

$0.50 15
$0.50
$0.25 $0.75 10
$0.00 $1.00 5
0 5 10 15 20 25
$1.25 3
Quantity
$1.50 1

Demand Schedule
Demand Curve for Snickers Bars
$1.50 Price Quantity
Demanded
$1.25
$1.00 $0.25 8
Price

$0.75
$0.50 6
$0.50
$0.25 $0.75 4
$0.00 $1.00 2
0 5 10 15 20 25
Quantity $1.25 1
$1.50 0

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How Do Buyers Behave? (9 of 25)

What if I told you that we will be meeting today for 5

hours and you won’t be allowed to leave the room

for the entire time!

Would that change your willingness to pay for the

Snickers?

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How Do Buyers Behave? (10 of 25)

Demand Curve for Snickers Bars

$1.50

$1.25

$1.00
Price

$0.75

$0.50

$0.25

$0.00
0 5 10 15 20 25 30 35
Quantity

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How Do Buyers Behave? (11 of 25)
Exhibit 4.4 Shifts of the Demand Curve vs. Movement Along
the Demand Curve

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How Do Buyers Behave? (12 of 25)
Exhibit 4.3 Market Demand Curve for Oil

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Evidence-Based Economics (1 of 2)

How much more

gasoline would
people buy if its
price were lower?

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Evidence-Based Economics (2 of 2)
Exhibit 4.5 The Quantity of Gasoline Demanded (per person)
and the Price of Gasoline in Brazil, Mexico, and Venezuela

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How Do Sellers Behave? (13 of 25)

How much would you have to be paid to sell you

smartphone right now in class?

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How Do Sellers Behave? (14 of 25)
Quantity Supplied
The amount of a good that sellers are willing to sell at a
given price.

Supply Schedule
A table that reports the quantity supplied at different
prices.

Supply Curve
Plots the quantity supplied at different prices.
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How Do Sellers Behave? (15 of 25)
Supply Curve for Smartphones
$400

Supply Schedule
$325
Quantity
$250 Price Demanded
Price

$25 5
$175 $100 10
$175 15
$100
$250 20
$325 25
$400 30
$25
0 5 10 15 20 25 30 35
Quantity

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How Do Sellers Behave? (16 of 25)

Why are more of you willing to sell your smartphone

at the higher the price?

Why is the price not the same for everybody?

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How Do Sellers Behave? (17 of 25)

Market Supply Curve

Plots the relationship between the total quantity

supplied and the market price, holding all else
equal.

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How Do Sellers Behave? (18 of 25)
Market Supply for Smartphones

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How Do Sellers Behave? (19 of 25)

Remember what price you required to sell your

smartphone in class?

What if, in addition to the phone buyback, I also was

giving away free smartphones of the latest and best

technology?
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How Do Sellers Behave? (20 of 25)

Shifts of the Supply Curve occur when one of the

following changes:

1. input prices

2. technology

3. number and scale of sellers

4. sellers’ expectations about the future

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How Do Sellers Behave? (21 of 25)
Shift of Supply Curve for Smartphones
Supply Curve for Smartphones
$400

$325

$250
Price

$175

$100

$25
0 5 10 15 20 25 30 35
Quantity

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How Do Sellers Behave? (22 of 25)
Exhibit 4.7 Aggregation of Supply Schedules and Supply Curves

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How Do Sellers Behave? (23 of 25)

What if a new technology made it easier to access

previously unavailable oil reserves (e.g. fracking)?

Would highly efficient, low cost suppliers require

more or less to participate in the market?

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How Do Sellers Behave? (24 of 25)
Shift of Supply Curve for Oil

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How Do Sellers Behave? (25 of 25)
Exhibit 4.9 Shifts of the Supply Curve versus Movement
along the Supply Curve

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Supply and Demand in Equilibrium (1 of 21)
Competitive Equilibrium

The point at which the market comes to an agreement about what

the price will be (competitive equilibrium price) and how much
will be exchanged (competitive equilibrium quantity) at that
price.

Excess Demand

Occurs when consumers want more than suppliers provide at a

given price. This situation results in a shortage.
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Supply and Demand in Equilibrium (2 of 21)

Excess Supply

Occurs when suppliers provide more than

consumers want at a given price. This situation
results in a surplus.

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Supply and Demand in Equilibrium (3 of 21)
Exhibit 4.10 Demand Curve and Supply Curve for Oil

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Supply and Demand in Equilibrium (4 of 21)
Exhibit 4.11 Excess Supply

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Supply and Demand in Equilibrium (5 of 21)
Exhibit 4.12 Excess Demand

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Supply and Demand in Equilibrium (6 of 21)
Exhibit 4.13 A Leftward Shift of the Supply Curve

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Supply and Demand in Equilibrium (7 of 21)
Exhibit 4.14 A Righward Shift of the Supply Curve

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Supply and Demand in Equilibrium (8 of 21)

It’s time to revisit the

question:

Why do brown eggs cost

more than white eggs?

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Supply and Demand in Equilibrium (9 of 21)

Demand Side:

brown eggs are

healthier or organic

What’s wrong with this

picture?

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Supply and Demand in Equilibrium (10 of 21)

Supply Side:

brown eggs are

more expensive to
produce

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Supply and Demand in Equilibrium (11 of 21)

Ready for another one?

Why do the price of

roses increase right
before Valentine’s Day?

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Supply and Demand in Equilibrium (12 of 21)
Change in Demand for Roses

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Supply and Demand in Equilibrium (13 of 21)

Then why doesn’t the

price of beer increase

right before Super Bowl

Sunday?

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Supply and Demand in Equilibrium (14 of 21)
Change in Markets for Roses and Beer

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Supply and Demand in Equilibrium (15 of 21)
Both the Demand Curve and Supply Curve Shift
Right

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Supply and Demand in Equilibrium (16 of 21)
The Demand Curve Shifts Right and the Supply
Curve Shifts Left

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Supply and Demand in Equilibrium (17 of 21)
The Demand Curve Shifts Left and the Supply
Curve Shifts Right

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Supply and Demand in Equilibrium (18 of 21)
Both the Demand Curve and the Supply Curve Shift
Left

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Supply and Demand in Equilibrium (19 of 21)

Effects of Shifts of Demand and Supply

Change in Demand
Change in Supply

Incr. Demand Decr. Demand

Incr. Supply Equil. P ? Equil. P

Equil. Q Equil. Q ?

Decr. Supply Equil. P Equil. P ?

Equil. Q ? Equil. Q

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Supply and Demand in Equilibrium (20 of 21)
Alternative Example: “One more question: Why is
there a parking problem on campus?”

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Supply and Demand in Equilibrium (21 of 21)

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