1

Fig. 1 The Demand Curve

Number of Bottles per Month

Price per Bottle

A

B

$4.00

2.00

D

40,000 60,000

At $2.00 per bottle, 60,000 bottles are demanded (point B).

When the price is $4.00 per bottle, 40,000 bottles are demanded (point A).

2

Fig. 2 A Shift of the Demand Curve

B C$2.00

D1D2

60,000 80,000

An increase in income shifts the demand curve for maple syrup from D1 to D2. At each price, more bottles are demanded after the shift.

Number of Bottles per Month

Price per Bottle

3

Fig. 3(a) Movements Along and Shifts of the Demand Curve

Quantity

Price

P2

Q2 Q1 Q3

P1

P3

Price increase moves us leftward along demand curve

Price increase moves us rightward along demand curve

4

Fig. 3(b) Movements Along and Shifts of the Demand Curve

Quantity

Price

D2

D1

Entire demand curve shifts rightward when:• income or wealth ↑• price of substitute ↑• price of complement ↓• population ↑• expected price ↑• tastes shift toward good

5

Fig. 3(c) Movements Along and Shifts of the Demand Curve

Quantity

Price

D1

D2

Entire demand curve shifts leftward when:• income or wealth ↓• price of substitute ↓• price of complement ↑• population ↓• expected price ↓• tastes shift toward good

6

Fig. 4 The Supply Curve

F

G

2.00

S

40,000 60,000

$4.00

At $4.00 per bottle, quantity supplied is 60,000 bottles (point G).

When the price is $2.00 per bottle, 40,000 bottles are supplied (point F).

Number of Bottles per Month

Price per Bottle

7

Fig. 5 A Shift of the Supply Curve

S2

G J

S1

60,000

$4.00

80,000

A decrease in transportation costs shifts the supply curve for maple syrup from S1 to S2.

Number of Bottles per Month

Price per Bottle

At each price, more bottles are supplied after the shift

8

Fig. 6(a) Changes in Supply and in Quantity Supplied

P2

Q3 Q1 Q2

P1

P3

Quantity

Price Price increase moves us rightward along supply curve

S

Price increase moves us leftward along supply curve

9

Fig. 6(b) Changes in Supply and in Quantity Supplied

Quantity

Price

S2

S1Entire supply curve shifts rightward when:• price of input ↓• price of alternate good ↓• number of firms ↑• expected price ↑• technological advance• favorable weather

10

Fig. 6(c) Changes in Supply and in Quantity Supplied

Quantity

Price

S1

S2Entire supply curve shifts rightward when:• price of input ↑• price of alternate good ↑• number of firms ↓• expected price ↑• unfavorable weather

11

Fig. 7 Market Equilibrium

E

H J1.00

$3.00

D

S

50,000 75,00025,000

Excess Demand

4. until price reaches its equilibrium value of $3.00

.

2. causes the price to rise . . .

3. shrinking the excess demand . . .

1. At a price of $1.00 per bottle an excess demand of 50,000 bottles . . .

Number of Bottles per Month

Price per Bottle

12

Fig. 8 Excess Supply and Price Adjustment

3. shrinking the excess supply . . .

K L

E3.00

D

S

$5.00

50,00035,000 65,000

Excess Supply at $5.00

2. causes the price to drop,

4. until price reaches its equilibrium value of $3.00.

Number of Bottles per Month

Price per Bottle

1. At a price of $5.00 per bottle an excess supply of 30,000 bottles . . .

13

Fig. 9 A Shift in Demand and a New Equilibrium

1. An increase in demand . . .E

F'

3.00

D1

D2

S

$4.00

50,000 60,000

3. to a new equilibrium.

5. and equilibrium quantity increases too.

2. moves us along the supply curve . . .

Number of Bottles of Maple Syrup per Period

Price per Bottle

4. Equilibrium price increases

14

Fig. 10 A Shift of Supply and a New Equilibrium

E'

E3.00

D

$5.00

50,00035,000

S2 S1

Number of Bottles

Price per Bottle

15

Fig. 11 Changes in the Market for Handheld PCs

1. An increase in supply . . .

2. and a decrease in demand . . .

5. and quantity decreased as well.

A

B$400

D2003

S2002

S2003

D2002

$500

2.45 3.33 Millions of Handheld PCs per Quarter

Price per Handheld

PC

4. Price decreased . . .

3. moved the market to a new equilibrium.

16

Fig. 12 A Price Ceiling in the Market for Maple Syrup

60,00050,00040,000

TE

VR

D

S

$4.00

3.00

2.002. increases quantity

demanded

3. and decreases quantity supplied.

4. The result is a shortage – the distance between R and V.

Number of Bottles of Maple Syrup per Period

Price per Bottle

1. A price ceiling lower than the equilibrium price . . .

5. With a black market, the lower quantity sells for a higher price than initially.

17

Fig. 13 The Market for Oil

P2

D

E'

P1E

Q2 Q1

S2

S1

Barrels of Oil

Price per Barrel of Oil

18

Fig. 14 The Market for Natural Gas

Cubic Feet of Natural Gas

Price per Cubic Foot of Natural

Gas

P4

P3

F

Q3 Q4

S

D2

F'

D1