Chapter 3: Demand and Supply FTR, section 002 & 004, winter
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
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?
Markets and Competition
A market is a group of buyers and sellers of a particular good or
A competitive market is one in which there are so many buyers
and so many sellers that each has a negligible impact on the
A perfectly competitive market:
• all goods are exactly the same
• buyers & sellers so numerous that no one can affect the
market price – each is a “price taker”
In this chapter, we assume markets are perfectly competitive.
Demand comes from the behaviour of buyers.
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, other things equal, the quantity
demanded of a good falls when the price of the good rises.
Demand occurs when you are willing to buy it (want it) and
able to buy it (have money and can afford it )
The Demand Schedule
1 A table that shows the relationship between the price of a good
and the quantity demanded.
Helen’s demand for lattes.
of lattes of lattes demanded
** What can you say from the above demand schedule?**
The Law of Demand:
2 Helen’s Demand Curve from the above Demand
Price of Lattes
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)
3 Price Helen’s Qd Ken’s Q d Market
$0.00 16 8 24
$1.00 14 7 21
$2.00 12 6 18
$3.00 10 5 15
$4.00 8 4 12
$5.00 6 3 9
$6.00 4 2 6
The Market Demand Curve for Lattes
4 Price of
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
Changes in them shift the D curve…
1. Number of Buyers
0 5 10 15 20 25 30
Demand for a normal good is positively related to income.
Demand for an inferior good is negatively related to income.
3. Prices of Related Goods
substitute or complementary goods?en there is a change in the price of
Example: Atkins diet increased demand for eggs.
6 Expectations affect consumers’ buying decisions
** What happens to the demand for new autos when the economy turns
bad and people worry about future job security:
Summary: Variables That Affect Demand
Variable A change in this variable
Price …causes a movement along the D curve
No. of buyers …shifts the D curve
Income …shifts the D curve
related goods …shifts the D curve
Tastes …shifts the D curve
Expectations …shifts the D curve
Supply comes from the behaviour of sellers.
The quantity supplied of any good is the amount that sellers are
willing to sell.
Law of supply: the claim that, other things equal, the quantity
supplied of a good rises when the price of the good rises.
The Supply Schedule