Demand and Supply

Chapter Three

Individual Markets:

Demand and Supply

CHAPTER OVERVIEW

This chapter provides a basic, but rather detailed introduction to how markets operate as well as an introduction to demand and supply concepts. Both demand and supply are defined and illustrated; determinants of demand and supply are listed and explained. The concept of equilibrium and the effects of changes in demand and supply on equilibrium price and quantity are explained and illustrated. The chapter also includes brief discussions of supply and demand factors in resource markets and the importance of the ceteris paribus assumption.

WHAT’S NEW?

An Internet-only companion Chapter 3W (Applications and Extension of Supply and Demand Analysis) has been added.

Examples relating to shifters of demand and supply have been updated and expanded, both within the text and in Chapter 3W.

“Marginal cost” replaces “cost per added unit of output” in the description of the upward sloping supply curve.

Applications on price ceilings and price floors have been added, replacing the previous edition’s “Pink Salmon” application on simultaneous changes in supply and demand. The “Pink Salmon” is now in Chapter 3W.

The term “black markets” has been removed from the terms list. “Price ceilings” and “price floors” have been added.

End-of-chapter questions have been added and revised, and web-based questions have been updated.

A “Consider This” box has been added on the Alfred Marshall scissors analogy about the relative importance of supply versus demand.

INSTRUCTIONAL OBJECTIVES

After completing this chapter, students should be able to

1. Identify, explain, and provide examples of markets.

2. Explain who and what demand and supply represent.

3. Differentiate between demand and quantity demanded; and supply and quantity supplied.

4. Graph demand and supply curves when given demand and supply schedules.

5. State the Law of Demand and the...