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Demand and Supply: Using Graphs to Explain the Price of Gasoline
What is a Market? An institution or mechanism that brings together buyers and sellers Common element in all markets: goods are traded We can show how markets work with diagrams
Demand Law of Demand: All else equal, as the price decreases, the quantity demanded rises Demand is how much individuals are able and willing to purchase at any price, during a period of time Downsloping demand curve (inverse relationship) Changes in price: movements along the curve P                                                                    D                                                                       Quantity of gasoline
Determinants of Demand Things other than price that affect why people buy gasoline Change in buyer tastes (what they want) Change in the number of buyers Change in income Change in prices of related goods Change in expectations Shifts the curve [The curve only deals with price and consumption.]
Changes in Demand               P               	D”D      D’ 25                  50                        100               Q
Supply Law of Supply: All else equal, as price rises, the quantity supplied rises Changes in price: movements along the curve     P                                         S                                      Q
Determinants of Supply Things other than price affect why firms sell gasoline Change in resource prices Change in technology Change in taxes or subsidies Change in prices of other goods related in production Change in expectations Changes in number of sellers Shifts the curve
Changes in Supply            P                  S”S             P                                                                             S’           25      50     100      Q
Equilibrium and Change in Demand Equilibrium: demand and supply intersect  Quantity demanded equals the quantity supplied Determines equilibrium (market) price and quantity Increase demand: Price increases, quantity supply increases Decrease demand: Price decreases, quantity supply decreases
Equilibrium Price and Quantity            P                                      S         $1.00                      D 50                    Q
Price and Changes in Demand            P S         $1.50             $1.00         $0.75                                                         D”          D             D’ 25  50   100         Q
Equilibrium and Change in Supply Increase supply Price decreases Quantity demand increases Decrease supply  Price increases Quantity demand decreases
Price and Changes in Supply            P                           S”S         $1.50                                 S’         $1.00         $0.75                       25  50   100         Q

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Supply Demand

  • 1. Demand and Supply: Using Graphs to Explain the Price of Gasoline
  • 2. What is a Market? An institution or mechanism that brings together buyers and sellers Common element in all markets: goods are traded We can show how markets work with diagrams
  • 3. Demand Law of Demand: All else equal, as the price decreases, the quantity demanded rises Demand is how much individuals are able and willing to purchase at any price, during a period of time Downsloping demand curve (inverse relationship) Changes in price: movements along the curve P D Quantity of gasoline
  • 4. Determinants of Demand Things other than price that affect why people buy gasoline Change in buyer tastes (what they want) Change in the number of buyers Change in income Change in prices of related goods Change in expectations Shifts the curve [The curve only deals with price and consumption.]
  • 5. Changes in Demand P D”D D’ 25 50 100 Q
  • 6. Supply Law of Supply: All else equal, as price rises, the quantity supplied rises Changes in price: movements along the curve P S Q
  • 7. Determinants of Supply Things other than price affect why firms sell gasoline Change in resource prices Change in technology Change in taxes or subsidies Change in prices of other goods related in production Change in expectations Changes in number of sellers Shifts the curve
  • 8. Changes in Supply P S”S P S’ 25 50 100 Q
  • 9. Equilibrium and Change in Demand Equilibrium: demand and supply intersect Quantity demanded equals the quantity supplied Determines equilibrium (market) price and quantity Increase demand: Price increases, quantity supply increases Decrease demand: Price decreases, quantity supply decreases
  • 10. Equilibrium Price and Quantity P S $1.00 D 50 Q
  • 11. Price and Changes in Demand P S $1.50 $1.00 $0.75 D” D D’ 25 50 100 Q
  • 12. Equilibrium and Change in Supply Increase supply Price decreases Quantity demand increases Decrease supply Price increases Quantity demand decreases
  • 13. Price and Changes in Supply P S”S $1.50 S’ $1.00 $0.75 25 50 100 Q