Chapter 4 Demand and Supply

I. The Marketplace 
II. Demand 
4 Videos
III. Supply

IV. Equilibrium 2 videos
V. Ceilings and Floors
1 video
VI. Changes in Supply & Demand
1 video
VII. Valuing Bonds
1 video
XI. Political Economy Book Summaries
XII. Free Economics Books
Test Review Notes Chapters 1-7

Return to Economics Internet Library    
Please link to, use to educate, Share!

Lecture Notes

  I. The marketplace
     A. A market is defined as an institution or mechanism which promotes trade by
          bringing together buyers (demanders) and sellers ( suppliers).
     B. Replaced barter1 which is the direct exchange of goods.
     C. A modern market brings money and prices into the circular flow of goods.
     D. Tom Sloan Cartoon Supply and Demand

II. Demand is willingness to buy.

      A. Demand is a schedule of the amounts of goods and  services consumers
           are willing and able to buy at a set of prices.


  B. Total demand is the horizontal summation video of individual demand.
      C. Law of demand:: price and quantity are inversely related.
           1. As price goes up, quantity demanded goes down.
           2. As price goes down, quantity demanded goes up.
      D. provided cartoons
E. More is bought as price drops because of the Income and
           Substitution Effects.
          1. Income Effect: as the price of a good drops, consumers
              feel richer and buy more.
          2. Substitution Effect: as the price of a good drops, it
              becomes cheaper relative to other goods and
              consumers buy more.
          3. Income and Substitution Effects
          4. Examples
Example #1
5 min. Video
              b. Example #2 
"Why hasn't economic progress lowered
                  work hours more?" Tyler Cowen, Hayek Lecture Series
                  42 min. video
          6. Optional
               a) Indifference Curves and Budget Lines Video 11 minutes
               b) Graphic Analysis using budget lines and indifference
                    goods  Video
 23 minutes  
       F. What determines demand   
           1. Tastes or preferences of consumers
           2. Number of consumers
           3. Incomes of consumers
               a. normal (superior) goods such as steak and vacations -
               more is purchased as income increases. 
               b. inferior goods such as bread and hamburger - less
                   is purchased as income increases.
           4. Consumer expectations
           5. Price of related goods
               a. Substitutes are goods that compete with each other
                 r such as hot dogs and hamburgers.
                   If the price of a good increases, the demand for its
                   substitutes will increase.
               b. Complements are goods that are purchased together
                    like hot dogs and rolls. If the price of a good increases,
                    the demand for its complement will decrease.
"Ceteris Paribus" is Latin for all other variables remain same..
               So one variable changed at a time.
G. Changes (shifts) in Demand
  1. A decrease in demand shifts the demand curve to the left
         2. An increase in demand shifts the demand curve to the right


      Note: Increase is to the right because the x-axis increases to the right.

     H. Explorations in Economic Demand by Kim Sosin,
          Department of Economics of the University
          of Omaha has good examples.
      I. Demand and Supply Quiz

III. Supply is willingness to sell
     A. Supply is a schedule of the amounts of goods
            or services producers are willing and able to
            sell at a set of prices.
       B. Law of supply: price and quantity supplied are
            directly related because price and expected
            profit are directly related
           1. As price goes up, quantity supplied goes up
           2. As price goes down, quantity supplied goes down
       C. Supply schedule



D. What determines supply
           1. Product costs as affected by
               a. Technology
               b. Resource prices
               c. Government involvement with taxes and subsidies
           2. Price of related goods
                a. If 2 goods are substitutes, price up for one will
                    increase supply of the other as companies see
                    more potential profit
                b. Example price of gasoline up, supply of
                    alternative fuels increases
       E. An increase in supply shifts the supply curve to the right
Explorations in Economic Supply from Dr. Kim Sosin
           of the University of Omaha has good examples.

 IV. Equilibrium is where suppliers and demanders agree on price
       and quantity as depicted by the intersection of their supply and
       demand curves. 
       A. If the price is too high, a surplus results and price must be
            lowered as when the world economic slowdown in 1999
            required lowering price to work down supply. 
       B. If the price is too low, a shortage results. This happens
            with toys every Christmas i.e. Cabbage Patch Craze
       C. If they can not agree, as happened with Beta videotape
           machines, then the curves do not intersect and the 
           goods are not sold.

       D. Rationing function of price
          1. When competitive forces of supply and demand result in
              an equilibrium, a rationing function of goods produce to
              consumers has occurred.
          2. Competition caused an efficient allocation of resources.
          3.The Economics of finding the right Career "Follow the Skills" video
. Disequilibrium yields a Surplus, and Shortage video

      F. Post WW2 Equilibrium
          1. World Changed, Good Jobs Gone
          2. US Economic Normality 1945-2015   p 2
          3. Post WW2 International Competitive Adjustment
The Science of Supply and Demand | St. Louis Fed

V. Government imposed price ceilings and floors
      A. A price ceiling keeps prices from rising (rent control) helping
           renters but often resulting in a shortage of housing as
           investors seek higher returns elsewhere.
      B. A price floor keeps prices from falling (farm price supports)
           helps farmers though a surplus often results as more of
           supported crops are produced.
Econ in 60 Seconds :Government Price Controls











Political Cartoons Analyze
Supply and Demand











The Free Market Does Work: How Pot Legalization
Caused Its Price to Collapse


Economic Questions:

Preface: Do Economists Lie?

For Trump 
1. Increase Economies Growth

Tax Cuts Success?

3. Inflation's Back, Trouble Ahead?

4. Stocks Too High?

5. Recession Coming?


Will Inflation/Growth Tame Deficits


2.  Will Debt End Capitalism


3. Job Loss to AI


4. Dollar Privilege Continuation


5. Disposition-Illegal Immigrants


6. Is Income Inequality Affecting Growth


7. Will Stagnate Income Continue


8. Russia/China U.S. Adversaries










VI. Changes in supply and demand affect equilibrium
A. Econ Concepts in 60 Second Video on Double Shifts in Supply and Demand
       B Econ Concepts in 60 Seconds Video on Shifting Supply and Demand
   C. Another View

D up and S up equally

D up causes 
P up
and Q up

S up causes 
P down
and Q up

Result is  P same and Q up



D up and S 
down equally  

D up causes 
P up
and Q up 

S down causes 
P up
and Q down 

Result is P up and Q same





D down and S up equally

D down causes
P down and Q down

S up causes 
P down
and Q up

Result is
P down and Q same
D down and S  
down equally 

D down causes 
P down
and Q down 

S down causes 
P up
and Q down 

Result is 
P same
and Q down


   D. View a dynamic model of Changes in Supply, Demand and Market Equilibrium
    by Dennis Kaufman University of Wisconsin-Parkside.

   E. Unequal Shifts in Demand and Supply


                            D up and S up more

More Excellent Supply/Demand Practice from


D up and S down more



          5. Market Value of Issued Bond Kahn  Video from Khan Academy
 calculates the new bond value when interest rate drops.



Supplemental  Political Economy Stuff

VIII. Would deportation of illegal immigrants
affect the minimum  wage?


Last Chapter 
Chapter 4 Class Discussion Questions
Chapter 4 Homework Questions
Next Chapter 
Table of Contents
Economics Internet Library