Managerial Economics in a

Global Economy

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

PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 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 Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Change in Quantity
Demanded
Price
An increase in price
causes a decrease in
quantity demanded.
P1

P0

Quantity
Q1 Q0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Change in Quantity
Demanded
Price
A decrease in price
causes an increase in
quantity demanded.

P0

P1

Quantity
Q0 Q1
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 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 Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Change in Demand
An increase in demand
Price
refers to a rightward shift
in the market demand
curve.

P0

Quantity
Q0 Q1
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Change in Demand
A decrease in demand
Price
refers to a leftward shift
in the market demand
curve.

P0

Quantity
Q1 Q0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 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 Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Quantity Supplied
A decrease in price
Price causes a decrease in
quantity supplied.

P0

P1

Quantity
Q1 Q0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
Change in Quantity Supplied
An increase in price
Price causes an increase in
quantity supplied.

P1

P0

Quantity
Q0 Q1
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Changes in Supply

• Change in Production Technology

• Change in Input Prices
• Change in the Number of Sellers

PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Change in Supply
An increase in supply
refers to a rightward shift
Price in the market supply curve.

P0

Quantity
Q0 Q1
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Change in Supply
A decrease in supply refers
to a leftward shift in the
Price market supply curve.

P0

Quantity
Q1 Q0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 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 Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Market Equilibrium
Price

D S

Quantity
Q
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Market Equilibrium
Price

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

Quantity
Q0 Q1
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Market Equilibrium
Price

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

Quantity
Q1 Q0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Market Equilibrium
Price An increase
in supply
D0 S0 S1 will cause
the market
equilibrium
price to
P0 decrease and
P1 quantity to
increase.

Quantity
Q0 Q1
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.
 Market Equilibrium
Price A decrease in
supply will
D0 S1 S0 cause the
market
equilibrium
price to
P1 increase and
P0 quantity to
decrease.

Quantity
Q1 Q0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.