Unit 2: Supply and Demand

Introduction

What’s in This Chapter? Why do prices of houses, cars, gasoline, and food fluctuate? What explains increases and decreases in interest rates? Why do prices of stocks and bonds change every second? Why does one gas station...

Read More

Section 1: The Law of Demand

Price and Quantity Changes The law of demand states that buyers of a good will purchase more of the good if its price is lower, and vice versa. If the price of apples decreases from $1.79 per pound to $1.59 per pound, ceteris...

Read More

Section 2: The Demand Curve

Graphing the Demand Curve We can graph demand data in a diagram. The two variables we consider are the price of the product (P) and the amount of the product purchased during a certain period of time (Q). Economists measure the...

Read More

Section 3: The Law of Supply

Price and Quantity Changes The law of supply states that, ceteris paribus, producers offer more of a product at higher than at lower prices. If the product price is high, the supplier can make greater profits by selling more...

Read More

Section 4: The Supply Curve

Graphing the Supply Curve A supply curve slopes upward from the bottom left to the upper right of the diagram. At higher prices, firms are willing and able to sell more than at lower prices. We say that there is a direct...

Read More

Section 5: Equilibrium Price and Quantity

The Market Price and Quantity In a free and competitive market without government price controls, the equilibrium, or market, price and quantity occur at the intersection of the supply and demand curves. At this price, consumers...

Read More

Section 6: Demand Determinants

Reasons for a Shift in the Demand Curve Demand can increase or decrease. In this case, the demand curve shifts to the right or to the left, respectively. The following are reasons: 1. A change in buyers’ real incomes or...

Read More

Section 8: Supply Determinants

Reasons for a Shift in the Supply Curve Supply can increase or decrease. In this case, the supply curve shifts to the right or to the left respectively. The following are reasons: 1. An advance in technology. An advance in the...

Read More
Loading