Chapter 3 Supply and Demand Online Texts com

The Law of Demand • The law of demand holds that other things equal,

Demand Curve The demand curve has a negative slope, consistent with the law of

The Law of Supply • The law of supply holds that other things equal,

Supply Curve The supply curve has a positive slope, consistent with the law of

Equilibrium • In economics, an equilibrium is a situation in which: – there is

Equilibrium occurs at a price of $3 and a quantity of 30 units. ©

Shortages and Surpluses • A shortage occurs when quantity demanded exceeds quantity supplied. –

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Chapter 3 Supply and Demand © Online. Texts. com p. 1

The Law of Demand • The law of demand holds that other things equal, as the price of a good or service rises, its quantity demanded falls. – The reverse is also true: as the price of a good or service falls, its quantity demanded increases. © Online. Texts. com p. 2

Demand Curve The demand curve has a negative slope, consistent with the law of demand. © Online. Texts. com p. 3

The Law of Supply • The law of supply holds that other things equal, as the price of a good rises, its quantity supplied will rise, and vice versa. • Why do producers produce more output when prices rise? – They seek higher profits – They can cover higher marginal costs of production © Online. Texts. com p. 4

Equilibrium • In economics, an equilibrium is a situation in which: – there is no inherent tendency to change, – quantity demanded equals quantity supplied, and – the market just clears. © Online. Texts. com p. 6

Shortages and Surpluses • A shortage occurs when quantity demanded exceeds quantity supplied. – A shortage implies the market price is too low. • A surplus occurs when quantity supplied exceeds quantity demanded. – A surplus implies the market price is too high. © Online. Texts. com p. 8