1. SOCI421 250 WORDS APAP FORMAT
DATING AND SINGLEHOOD
Respond to one of the following questions:
1. Online dating services have become increasingly popular.
For this week’s discussion, turn your sociological eye to
cyberdating, or online dating. Start by discussing trends in
cyberdating. How and why is it changing modern dating and
mate selection? How is cyberdating similar to, or different than,
past courtship or dating practices? In your discussion also
address what kinds of information one must disclose to
participate, whether there are certain qualities or audiences that
various sites might appeal to, and what the outcomes of using
these sites seem to be. How has the prevalence of dating apps
impacted this trend? Finally, consider which theory from
earlier reading/s can be applied to this type of dating and
explain your choice.
2. Why are many Americans choosing not to marry or
postponing marriage? Why has cohabitation increased? In what
way are these topics related? In your discussion, address social
factors that may impact these statistics (such as race, sex ratio,
etc.) as well as address the perception of marriage in
contemporary society.
N. Gregory Mankiw

2. Macroeconomics
Brief Principles of
Sixth Edition
4
The Market Forces of Supply and Demand
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Premium PowerPoint
Slides by
Ron Cronovich
2012 UPDATE
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‹#›
This is perhaps the most important chapter in the textbook. It’s
worth mentioning to your students that investing extra time to
master this chapter will make it easier for them to learn much of
the subsequent material in the book.
This is also one of the longest chapters in the textbook, and this
PowerPoint file is one of the most graph-intensive. Many
students taking economics for the first time have difficulty
grasping the graphs, which are critically important in this and
all subsequent chapters in the book. So an extra degree of
hand-holding might be appropriate.
Accordingly, this PowerPoint has carefully detailed animations
that build many of the graphs with great care. For example, we

3. show a demand or supply schedule next to the axes, and
highlight each coordinate pair in the table as the corresponding
point appears on the graph.
Please be assured that the presentation of graphs is more
streamlined in subsequent chapters. In this early chapter,
though, we do not want to leave any students behind.
If your students are already very comfortable with scatter-type
graphs, you may wish to simplify or turn off the animation on
these slides, in order to get through them faster.
0
In this chapter,
look for the answers to these questions:
What factors affect buyers’ demand for goods?
What factors affect sellers’ supply of goods?
How do supply and demand determine the price of a good and
the quantity sold?
How do changes in the factors that affect demand or supply
affect the market price and quantity of a good?
How do markets allocate resources?
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1
Markets and Competition
A market is a group of buyers and sellers of a particular

4. product.
A competitive market is one with many buyers and sellers, each
has a negligible effect on price.
In a perfectly competitive market:
All goods exactly the same
Buyers & sellers so numerous that no one can affect market
price—each is a “price taker”
In this chapter, we assume markets are perfectly competitive.
0
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2
2
In the real world, there are relatively few perfectly competitive
markets. Most goods come in lots of different varieties—
including ice cream, the example in the textbook. And there are
many markets in which the number of firms is small enough that
some of them have the ability to affect the market price.
For now, though, we look at supply and demand in perfectly
competitive markets, for two reasons: First, it’s easier to learn.
Understanding perfectly competitive markets makes it a lot
easier to learn the more realistic but complicated analysis of
imperfectly competitive markets. Second, despite the lack of
realism, the perfectly competitive model can teach us a LOT
about how the world works, as we will see many times in the
chapters that follow.

5. Demand
The quantity demanded of any good is the amount of the good
that buyers are willing and able to purchase.
Law of demand: the claim that the quantity demanded of a good
falls when the price of the good rises, other things equal
0
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3
3
Demand comes from the behavior of buyers.
The Demand Schedule
Demand schedule:
a table that shows the relationship between the price of a good
and the quantity demanded
Example:
Helen’s demand for lattes.
Notice that Helen’s preferences obey the
law of demand. Price
of lattesQuantity
of lattes demanded$0.00161.00142.00123.00104.0085.0066.004
0
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6. classroom use.
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4
4
Price of Lattes
Quantity of Lattes
Helen’s Demand Schedule & CurvePrice
of lattesQuantity
of lattes demanded$0.00161.00142.00123.00104.0085.0066.004

7. 0
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5
5
Market Demand versus Individual Demand
The quantity demanded in the market is the sum of the
quantities demanded by all buyers at each price.
Suppose Helen and Ken are the only two buyers in the Latte
market. (Qd = quantity demanded)
4
6
8
10
12
14
16
Helen’s Qd
2
3
4

8. 5
6
7
8
Ken’s Qd
+
+
+
+
=
=
=
=
6
9
12
15
+
=
18
+
=
21
+
=
24
Market Qd
$0.00
6.00
5.00
4.00
3.00
2.00
1.00
Price

9. 0
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10. 6
6
This example violates the “many buyers” condition of perfect
competition. Yet, we are merely trying to show here that, at
each price, the quantity demanded in the market is the sum of
the quantity demanded by each buyer in the market. This holds
whether there are two buyers or two million buyers. But it
would be harder to fit data for two million buyers on this slide,
so we settle for two.
P
Q
The Market Demand Curve for LattesPQd
(Market)$0.00241.00212.00183.00154.00125.0096.006

11. 0
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7
7
Demand Curve Shifters
The demand curve shows how price affects quantity demanded,
other things being equal.
These “other things” are non-price determinants of demand (i.e.,
things that determine buyers’ demand for a good, other than the
good’s price).
Changes in them shift the D curve…
0
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8
8

12. Demand Curve Shifters: # of Buyers
Increase in # of buyers
increases quantity demanded at each price, shifts D curve to the
right.
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9
9
Income is the first demand shifter discussed in this chapter of
the textbook. I chose to start with a different one (number of
buyers), for the following reason:
In discussing the impact of changes in income on the demand
curve, the textbook also introduces the concept of normal goods
and inferior goods. Students may find it easier to learn about
curve shifts if the presentation focuses solely on a curve shift
(at least initially) without simultaneously introducing other
concepts.
If you wish to present the demand shifters in the same order as
they appear in the book, simply reorder the slides in this
presentation.
P

13. Q
Suppose the number of buyers increases.
Then, at each P,
Qd will increase
(by 5 in this example).

14. 0
Demand Curve Shifters: # of Buyers
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10
10
Beginning economics students often have trouble understanding
the difference between a movement along the curve and a shift
in the curve. Here, the animation has been carefully designed to
help students see that a shift in the curve results from an
increase in quantity at each price.
(A more realistic scenario would involve a non-parallel shift,
where the horizontal distance of the shift would be greater for
lower prices than higher ones. However, to remain consistent
with the textbook, and to keep things simple, this slide shows a
parallel shift.)
Demand Curve Shifters: Income
Demand for a normal good is positively related to income.
Increase in income causes
increase in quantity demanded at each price, shifts D curve to
the right.
(Demand for an inferior good is negatively related to
income. An increase in income shifts D curves for inferior
goods to the left.)

15. 0
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11
11
Two goods are substitutes if
an increase in the price of one
causes an increase in demand for the other.
Example: pizza and hamburgers.
An increase in the price of pizza
increases demand for hamburgers,
shifting hamburger demand curve to the right.
Other examples: Coke and Pepsi,
laptops and desktop computers,
CDs and music downloads
Demand Curve Shifters: Prices of Related Goods
0
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12

16. 12
If you are willing to spend a couple extra minutes on substitutes
and complements, and have a blackboard or whiteboard to draw
on, here’s an idea:
Before (or instead of) showing this slide, draw the demand
curve for hamburgers. Pick a price, say $5, and draw a
horizontal line at that price, extending from the vertical axis
through the D curve and continuing to the right. Suppose Q =
1000 when P = $5. Label this on the horizontal axis.
Now ask your students: If pizza becomes more expensive, but
price of hamburgers does not change, what would happen to the
quantity of hamburgers demanded? Would it remain at 1000,
would it increase, or would it decrease? Explain.
Some and perhaps most students will see right away that people
will want more hamburgers when the price of pizza rises. After
establishing this, note that the increase in the price of pizza
caused an increase in the quantity demanded of hamburgers.
Then state the term “substitutes” and give the definition.
Before giving the other examples (listed in the 3rd bullet of this
slide), do a similar exercise to develop the concept of
complements. Finally, give the examples of substitutes and
complements from the 3rd bullet point of this and the following
slides, but mix up the order and ask students to identify whether
each example is complements or substitutes.
Two goods are complements if
an increase in the price of one
causes a fall in demand for the other.
Example: computers and software.
If price of computers rises,
people buy fewer computers,

17. and therefore less software.
Software demand curve shifts left.
Other examples: college tuition and textbooks,
bagels and cream cheese, eggs and bacon
Demand Curve Shifters: Prices of Related Goods
0
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13
13
Demand Curve Shifters: Tastes
Anything that causes a shift in tastes toward a good will
increase demand for that good
and shift its D curve to the right.
Example:
The Atkins diet became popular in the ’90s,
caused an increase in demand for eggs,
shifted the egg demand curve to the right.
0
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18. 14
14
Demand Curve Shifters: Expectations
Expectations affect consumers’ buying decisions.
Examples:
If people expect their incomes to rise,
their demand for meals at expensive restaurants may increase
now.
If the economy sours and people worry about their future job
security, demand for new autos may fall now.
0
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15
15
Summary: Variables That Influence Buyers
Variable A change in this variable…
Price…causes a movement
along the D curve
# of buyers …shifts the D curve
Income …shifts the D curve
Price of
related goods …shifts the D curve

19. Tastes …shifts the D curve
Expectations …shifts the D curve
0
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16
16
Students should notice that the only determinant of quantity
demanded that causes a movement along the curve is price.
Also notice: price is one of the variables measured along the
axes of the graph.
Here’s a handy rule of thumb to help students remember
whether the curve shifts: If the variable causing demand to
change is measured on one of the axes, you move along the
curve. If the variable that’s causing demand to change is NOT
measured on either axis, then the curve shifts.
This rule of thumb works with all curves in economics that
involve an X-Y relationship, including the supply curve, the
marginal cost curve, the IS and LM curves (not covered in this
book), and many others, though it does not apply to curves
drawn on time series graphs.
ACTIVE LEARNING 1
Demand Curve

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classroom use.
A. The price of iPods falls
B. The price of music downloads falls
C. The price of CDs falls
Draw a demand curve for music downloads. What happens to it
in each of
the following scenarios? Why?
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17
In each case, there are only three possible answers:
- The curve shifts to the right
- The curve shifts to the left
- The curve does not shift (though there may be a movement
along the curve)
Q2
Price of music down-loads
Quantity of
music downloads

21. D1
D2
P1
Q1
Music downloads and iPods are complements.
A fall in price of iPods shifts the demand curve for music
downloads
to the right.
ACTIVE LEARNING 1
A. Price of iPods falls
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18
Point out to your students that there are no numbers or units on
either axis, and we are using “P1” and “Q1” to represent the
initial price and quantity, rather than specific numerical values.

22. Tell them that this is common, because in much economic
analysis, the goal is only to see the direction of changes, not
specific amounts. (Besides, if we put numbers on this graph,
they’d just have been made up, so why bother?)
Also point out the following:
The price of music downloads is the same, but the quantity
demanded is now higher. In fact, this is the nature of a shift in
a curve: at any given price, the quantity is different than
before.
The D curve
does not shift.
Move down along curve to a point with lower P, higher Q.
Price of music down-loads
Quantity of
music downloads
D1
P1
Q1
Q2
P2
ACTIVE LEARNING 1
B. Price of music downloads falls

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19
P1
Q1
CDs and
music downloads are substitutes.
A fall in price of CDs shifts demand for music downloads
to the left.
Price of music down-loads
Quantity of
music downloads
D1
D2

24. Q2
ACTIVE LEARNING 1
C. Price of CDs falls
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20
Supply
The quantity supplied of any good is the amount that sellers are
willing and able to sell.
Law of supply: the claim that the quantity supplied of a good
rises when the price of the good rises, other things equal
0
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25. classroom use.
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21
21
Supply comes from the behavior of sellers.
Supply schedule:
A table that shows the relationship between the price of a good
and the quantity supplied.
Example:
Starbucks’ supply of lattes.
The Supply Schedule
Notice that Starbucks’ supply schedule obeys the
law of supply. Price
of lattesQuantity
of lattes supplied$0.0001.0032.0063.0094.00125.00156.0018
0
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22
22

26. Starbucks’ Supply Schedule & CurvePrice
of lattesQuantity
of lattes supplied$0.0001.0032.0063.0094.00125.00156.0018
P
Q
0
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27. or service or otherwise on a password-protected website for
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23
23
Market Supply versus Individual Supply
The quantity supplied in the market is the sum of
the quantities supplied by all sellers at each price.
Suppose Starbucks and Jitters are the only two sellers in this
market. (Qs = quantity supplied)
18
15
12
9
6
3
0
Starbucks
12
10
8
6
4
2
0
Jitters
+
+
+
+
=

28. =
=
=
30
25
20
15
+
=
10
+
=
5
+
=
0
Market Qs
$0.00
6.00
5.00
4.00
3.00
2.00
1.00
Price

29. 0
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24
24
Again, the assumption of only two sellers is a clear violation of
perfect competition. However, it’s much easier for students to
learn how the market supply curve relates to individual supplies
in the two-seller case.

30. P
Q
PQS (Market)$0.0001.0052.00103.00154.00205.00256.0030
0
The Market Supply Curve
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25
25

31. Supply Curve Shifters
The supply curve shows how price affects quantity supplied,
other things being equal.
These “other things” are non-price determinants of supply.
Changes in them shift the S curve…
0
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26
26
“Non-price determinants of supply” simply means the things—
other than the price of a good—that determine sellers’ supply of
the good.
Supply Curve Shifters: Input Prices
Examples of input prices:
wages, prices of raw materials.
A fall in input prices makes production
more profitable at each output price,
so firms supply a larger quantity at each price,
and the S curve shifts to the right.
0
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classroom use.

32. ‹#›
27
27
In the second bullet point, “output price” just means the price of
the good that firms are producing and selling. I have used
“output price” here to distinguish it from “input prices.”
P
Q
Suppose the price of milk falls.
At each price, the quantity of
lattes supplied
will increase

33. (by 5 in this example).
0
Supply Curve Shifters: Input Prices
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28
28
Again, the animation here is carefully designed to help make
clear that a shift in the supply curve means that there is a
change in the quantity supplied at each possible price. If it
seems tedious, you can turn it off.
In any case, be assured that, by the end of this chapter, the
animation of curve shifts will be streamlined and simplified.

34. Supply Curve Shifters: Technology
Technology determines how much inputs are required to
produce a unit of output.
A cost-saving technological improvement has
the same effect as a fall in input prices,
shifts S curve to the right.
0
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29
29
Supply Curve Shifters: # of Sellers
An increase in the number of sellers increases the quantity
supplied at each price,
shifts S curve to the right.
0
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30
30

35. Supply Curve Shifters: Expectations
Example:
Events in the Middle East lead to expectations of higher oil
prices.
In response, owners of Texas oilfields reduce supply now, save
some inventory to sell later at the higher price.
S curve shifts left.
In general, sellers may adjust supply* when their expectations
of future prices change.
(*If good not perishable)
0
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31
31
Variable A change in this variable…
Summary: Variables that Influence Sellers
Price…causes a movement
along the S curve
Input Prices …shifts the S curve
Technology …shifts the S curve
# of Sellers …shifts the S curve
Expectations …shifts the S curve

36. 0
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32
32
Draw a supply curve for tax
return preparation software.
What happens to it in each
of the following scenarios?
A. Retailers cut the price of
the software.
B. A technological advance
allows the software to be
produced at lower cost.
C. Professional tax return preparers raise the price of the
services they provide.
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ACTIVE LEARNING 2
Supply Curve
‹#›

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‹#›
33
“Tax return preparation software” means programs like
TurboTax by Quicken and TaxCut by H&R Block.
S curve does
not shift.
Move down
along the curve
to a lower P
and lower Q.
Price of tax return software
Quantity of tax return software
S1
P1
Q1
Q2
P2

38. © 2013 Cengage Learning. All Rights Reserved. May not be
copied, scanned, or duplicated, in whole or in part, except for
use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
ACTIVE LEARNING 2
A. Fall in price of tax return software
‹#›
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‹#›
34
S curve shifts to the right:
at each price,
Q increases.
Price of tax return software
Quantity of tax return software
S1
P1
Q1
S2

39. Q2
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ACTIVE LEARNING 2
B. Fall in cost of producing the software
‹#›
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‹#›
35
This shifts the demand curve for tax preparation software, not
the supply curve.
Price of tax return software
Quantity of tax return software
S1
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40. use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
ACTIVE LEARNING 2
C. Professional preparers raise their price
‹#›
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‹#›
36
P
Q
Supply and Demand Together
D
S
Equilibrium:
P has reached
the level where
quantity supplied equals
quantity demanded
0

41. ‹#›
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‹#›
37
37
We now return to the latte example to illustrate the concepts of
equilibrium: shortage and surplus.
D
S
P
Q
Equilibrium
price:PQDQS$0240121521810315154122059256630
the price that equates quantity supplied with quantity demanded
0
‹#›
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use as permitted in a license distributed with a certain product

42. or service or otherwise on a password-protected website for
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‹#›
38
38
D
S
P
Q
Equilibrium
quantity:PQDQS$0240121521810315154122059256630
the quantity supplied and quantity demanded at the equilibrium
price
0
‹#›
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use as permitted in a license distributed with a certain product
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classroom use.
‹#›
39

43. 39
P
Q
D
S
Surplus (a.k.a. excess supply):
when quantity supplied is greater than quantity demanded
Surplus
Example:
If P = $5,
then
QD = 9 lattes
and
QS = 25 lattes
resulting in a
surplus of 16 lattes
0
‹#›
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use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.

44. ‹#›
40
40
P
Q
D
S
Surplus (a.k.a. excess supply):
when quantity supplied is greater than quantity demanded
Facing a surplus,
sellers try to increase sales by cutting price.
This causes
QD to rise

45. Surplus
…which reduces the surplus.
and QS to fall…
0
‹#›
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use as permitted in a license distributed with a certain product
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‹#›
41
41
P
Q
D
S
Surplus (a.k.a. excess supply):
when quantity supplied is greater than quantity demanded
Facing a surplus,
sellers try to increase sales by cutting price.
This causes
QD to rise and QS to fall.

46. Surplus
Prices continue to fall until market reaches equilibrium.
0
‹#›
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use as permitted in a license distributed with a certain product
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‹#›
42
42
P
Q
D
S
Shortage (a.k.a. excess demand):
when quantity demanded is greater than quantity supplied
Example:
If P = $1,
then
QD = 21 lattes
and
QS = 5 lattes

47. resulting in a
shortage of 16 lattes
Shortage
0
‹#›
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use as permitted in a license distributed with a certain product
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‹#›
43
43
P
Q
D
S
Shortage (a.k.a. excess demand):
when quantity demanded is greater than quantity supplied

48. Facing a shortage,
sellers raise the price,
causing QD to fall
…which reduces the shortage.
and QS to rise,
Shortage
0
‹#›
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‹#›
44
44
P
Q

49. D
S
Shortage (a.k.a. excess demand):
when quantity demanded is greater than quantity supplied
Facing a shortage,
sellers raise the price,
causing QD to fall
and QS to rise.
Shortage
Prices continue to rise until market reaches equilibrium.
0
‹#›
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use as permitted in a license distributed with a certain product
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‹#›
45
45
Three Steps to Analyzing Changes in Eq’m

50. To determine the effects of any event,
1. Decide whether event shifts S curve,
D curve, or both.
2. Decide in which direction curve shifts.
3. Use supply—demand diagram to see
how the shift changes eq’m P and Q.
‹#›
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‹#›
46
46
Step 1 requires knowing all of the things that can shift D and
S—the non-price determinants of demand and of supply.
EXAMPLE: The Market for Hybrid Cars
P
Q
D1
S1
P1
Q1

51. price of hybrid cars
quantity of
hybrid cars
‹#›
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‹#›
47
47
STEP 1:
D curve shifts
because price of gas affects demand for hybrids.
S curve does not shift, because price of gas does not affect cost
of producing hybrids.
STEP 2:
D shifts right
because high gas price makes hybrids more attractive relative to
other cars.
EXAMPLE 1: A Shift in Demand
EVENT TO BE
ANALYZED:
Increase in price of gas.
P

52. Q
D1
S1
P1
Q1
D2
P2
Q2
STEP 3:
The shift causes an increase in price
and quantity of hybrid cars.
‹#›
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use as permitted in a license distributed with a certain product
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‹#›
48
48
EXAMPLE 1: A Shift in Demand

53. P
Q
D1
S1
P1
Q1
D2
P2
Q2
Notice:
When P rises, producers supply
a larger quantity
of hybrids, even though the S curve has not shifted.
Always be careful to distinguish b/w a shift in a curve and a
movement along the curve.
‹#›
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‹#›
49

54. 49
Terms for Shift vs. Movement Along Curve
Change in supply: a shift in the S curve
occurs when a non-price determinant of supply changes
(like technology or costs)
Change in the quantity supplied:
a movement along a fixed S curve
occurs when P changes
Change in demand: a shift in the D curve
occurs when a non-price determinant of demand changes
(like income or # of buyers)
Change in the quantity demanded:
a movement along a fixed D curve
occurs when P changes
‹#›
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‹#›
50
50
“Supply” refers to the position of the supply curve, while
“quantity supplied” refers to the specific amount that producers
are willing and able to sell.
Similarly, “demand” refers to the position of the demand curve,
while “quantity demanded” refers to the specific amount that
consumers are willing and able to buy.
If you’d like to be a rebel, delete this slide and all references to

55. the jargon it contains, and just use the terms “movement along a
curve” and “shift in a curve.” Note, however, that this is not
the official recommendation of Cengage/South-Western or Dr.
Mankiw.
If you’d like to cover this slide but make it move more quickly,
delete the text next to each second-level bullet (starting with
“occurs when”). Instead, give the information to your students
verbally or rely on them to read it in the textbook.
STEP 1:
S curve shifts
because event affects cost of production.
D curve does not shift, because production technology is not
one of the factors that affect demand.
STEP 2:
S shifts right
because event reduces cost,
makes production more profitable at any given price.
EXAMPLE 2: A Shift in Supply
P
Q
D1
S1
P1
Q1

56. S2
P2
Q2
EVENT: New technology reduces cost of producing hybrid
cars.
STEP 3:
The shift causes price to fall
and quantity to rise.
‹#›
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‹#›
51
51
EXAMPLE 3: A Shift in Both Supply
and Demand
P
Q
D1
S1

57. P1
Q1
S2
D2
P2
Q2
EVENTS:
Price of gas rises AND
new technology reduces production costs
STEP 1:
Both curves shift.
STEP 2:
Both shift to the right.
STEP 3:
Q rises, but effect
on P is ambiguous:
If demand increases more than supply, P rises.
‹#›
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‹#›

58. 52
52
EXAMPLE 3: A Shift in Both Supply
and Demand
STEP 3, cont.
P
Q
D1
S1
P1
Q1
S2
D2
P2
Q2
EVENTS:
price of gas rises AND
new technology reduces production costs

59. But if supply increases more than demand,
P falls.
‹#›
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53
53
Use the three-step method to analyze the effects of each event
on the equilibrium price and quantity of music downloads.
Event A: A fall in the price of CDs
Event B: Sellers of music downloads negotiate a reduction in
the royalties they must pay for each song they sell.
Event C: Events A and B both occur.
ACTIVE LEARNING 3
Shifts in supply and demand
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60. ‹#›
54
Important note about Event B:
The royalties that sellers must pay the artists are part of sellers’
“costs of production.” Typically, this royalty is a fixed amount
each time one of the artist’s songs is downloaded. Event B,
therefore, describes a reduction in sellers’ “costs of
production.”
2. D shifts left
P
Q
D1
S1
P1
Q1
D2
The market for music downloads
P2
Q2
1. D curve shifts
3. P and Q both fall.

61. STEPS
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ACTIVE LEARNING 3
A. Fall in price of CDs
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55
This is an extension of Active Learning exercise 1C, where we
saw that a fall in the price of compact discs would cause a fall
in demand for music downloads, because the two goods are
substitutes.
P
Q
D1
S1
P1

62. Q1
S2
The market for music downloads
Q2
P2
1. S curve shifts
2. S shifts right
3. P falls,
Q rises.
STEPS
(Royalties are part of sellers’ costs)
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ACTIVE LEARNING 3
B. Fall in cost of royalties
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56
NOTE: Don’t worry that the text on this slide looks garbled in
“Normal view” (i.e., edit mode). It works fine in “Slide Show”

63. (i.e., presentation mode).
Event B: Sellers of music downloads negotiate a reduction in
the royalties they must pay for each song they sell. This event
causes a fall in “costs of production” for sellers of music
downloads. Hence, the S curve shifts to the right.
STEPS
1. Both curves shift (see parts A & B).
2. D shifts left, S shifts right.
3. P unambiguously falls.
Effect on Q is ambiguous:
The fall in demand reduces Q,
the increase in supply increases Q.
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ACTIVE LEARNING 3
C. Fall in price of CDs and
fall in cost of royalties
‹#›
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57
It’s not necessary to draw a graph here. The answers to steps 1
and 2 should be clear from parts A and B. The answer to step 3
is a combination of the results from A and B.

64. CONCLUSION:
How Prices Allocate Resources
One of the Ten Principles from Chapter 1:
Markets are usually a good way
to organize economic activity.
In market economies, prices adjust to balance supply and
demand. These equilibrium prices are the signals that guide
economic decisions and thereby allocate scarce resources.
‹#›
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58
58
In the textbook, the conclusion of this chapter offers some very
nice elaboration on the second bullet point. There is also an “In
the News” box with a very nice article titled “In Praise of Price
Gouging.”
SUMMARY
A competitive market has many buyers and sellers, each of
whom has little or no influence
on the market price.
Economists use the supply and demand model to analyze
competitive markets.
The downward-sloping demand curve reflects the law of
demand, which states that the quantity buyers demand of a good
depends negatively on the good’s price.

65. © 2013 Cengage Learning. All Rights Reserved. May not be
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use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
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‹#›
59
SUMMARY
Besides price, demand depends on buyers’ incomes, tastes,
expectations, the prices of substitutes and complements, and
number of buyers.
If one of these factors changes, the D curve shifts.
The upward-sloping supply curve reflects the Law of Supply,
which states that the quantity sellers supply depends positively
on the good’s price.
Other determinants of supply include input prices, technology,
expectations, and the # of sellers. Changes in these factors shift
the S curve.
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use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
‹#›

66. © 2013 Cengage Learning. All Rights Reserved. May not be
copied, scanned, or duplicated, in whole or in part, except for
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classroom use.
‹#›
60
SUMMARY
The intersection of S and D curves determines the market
equilibrium. At the equilibrium price, quantity supplied equals
quantity demanded.
If the market price is above equilibrium,
a surplus results, which causes the price to fall.
If the market price is below equilibrium,
a shortage results, causing the price to rise.
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use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
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classroom use.
‹#›
61

67. SUMMARY
We can use the supply-demand diagram to analyze the effects of
any event on a market:
First, determine whether the event shifts one or both curves.
Second, determine the direction of the shifts. Third, compare
the new equilibrium to the initial one.
In market economies, prices are the signals that guide economic
decisions and allocate scarce resources.
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use as permitted in a license distributed with a certain product
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classroom use.
‹#›
62
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
051015
$0.00
$1.00
$2.00

68. $3.00
$4.00
$5.00
$6.00
0510152025
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
051015202530
Chart116141210864
market demand

69. 0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
051015
Chart116141210864
market demand
0
1
2
3
4
5
6

70. Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
05101520253035
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0

71. 0
0
0
0
0
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
05101520253035
Chart116141210864
market demand

72. 0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0

73. 0
0
0
0
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051

74. 0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
Chart116141210864
market demand
0
1
2

75. 3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0

76. 0
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
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Chart116141210864
market demand
0
1
2
3
4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0
Chart116141210864
market demand
0
1
2
3

77. 4
5
6
Helen's D curveDemandgood = Latteper monthperson 1person
2marketPQdQdQd$0.0016816$1.0014714$2.0012612$3.001051
0$4.00848$5.00636$6.00424
Helen's D curve0000000
market demand
0
0
0
0
0
0
0