Unit 2: Supply and Demand

Introduction

What’s in This Chapter? Why do prices of houses, cars, gasoline, and food fluctuate? Why do prices of stocks and bonds change all the time? Why do interest rates vary? Why do teachers and nurses make modest incomes and...

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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. This assumes that no other economic changes take place. If the price of...

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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 usually...

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Section 3: The Law of Supply

Price and Quantity Changes The law of supply states that, ceteris paribus, product suppliers 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...

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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...

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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 point at which the supply and demand curves intersect. At this price,...

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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...

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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...

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