2. Apple and the Demand for iPods By early 2007, over 100 million iPods had been sold and more than two billion songs had been downloaded from iTunes. Clearly the strategy of selling an expensive digital music player and selling the music cheaply has been very successful for Apple. But how long will the iPod’s dominance last? Learning Objectives Use demand and supply graphs to predict changes in prices and quantities. 3.4 Use a graph to illustrate market equilibrium . 3.3 Discuss the variables that influence supply . 3.2 Discuss the variables that influence demand . 3.1

5. The Demand Side of the Market Learning Objective 3.1 FIGURE 3-1 A Demand Schedule and Demand Curve Demand Schedules and Demand Curves

9. The Demand Side of the Market Learning Objective 3.1 FIGURE 3-2 Shifting the Demand Curve Holding Everything Else Constant: The Ceteris Paribus Condition

13. The Demand Side of the Market Learning Objective 3.1 Variables That Shift Market Demand TABLE 3-1 Variables That Shift Market Demand Curves

14. The Demand Side of the Market Learning Objective 3.1 Variables That Shift Market Demand TABLE 3-1 Variables That Shift Market Demand Curves (continued)

17. The Demand Side of the Market Learning Objective 3.1 FIGURE 3-3 A Change in Demand versus a Change in the Quantity Demanded A Change in Demand versus a Change in Quantity Demanded

20. The Supply Side of the Market Learning Objective 3.2 Supply Schedules and Supply Curves FIGURE 3-4 Supply Schedule and Supply Curve

22. The Supply Side of the Market Learning Objective 3.2 FIGURE 3-5 Shifting the Supply Curve The Law of Supply

24. The Supply Side of the Market Learning Objective 3.2 Variables That Shift Supply TABLE 3-2 Variables That Shift Market Supply Curves

25. The Supply Side of the Market Learning Objective 3.2 TABLE 3-2 Variables That Shift Market Supply Curves (continued) Variables That Shift Supply

26. The Supply Side of the Market Learning Objective 3.2 FIGURE 3-6 A Change in Supply versus a Change in the Quantity Supplied A Change in Supply versus a Change in Quantity Supplied

27. Market Equilibrium: Putting Demand and Supply Together FIGURE 3-7 Market Equilibrium Learning Objective 3.3

29. Market Equilibrium: Putting Demand and Supply Together Learning Objective 3.3 Surplus A situation in which the quantity supplied is greater than the quantity demanded. Shortage A situation in which the quantity demanded is greater than the quantity supplied. How Markets Eliminate Surpluses and Shortages

30. Market Equilibrium: Putting Demand and Supply Together Learning Objective 3.3 FIGURE 3-8 The Effect of Surpluses and Shortages on the Market Price How Markets Eliminate Surpluses and Shortages

31. Market Equilibrium: Putting Demand and Supply Together Learning Objective 3.3 Demand and Supply Both Count Always keep in mind that it is the interaction of demand and supply that determines the equilibrium price. Neither consumers nor firms can dictate what the equilibrium price will be. No firm can sell anything at any price unless it can find a willing buyer, and no consumer can buy anything at any price without finding a willing seller.

32. Demand and Supply Both Count: A Tale of Two Letters Learning Objective 3.3 Solved Problem 3-3

33. The Effect of Demand and Supply Shifts on Equilibrium FIGURE 3-9 The Effect of an Increase in Supply on Equilibrium The Effect of Shifts in Supply on Equilibrium Learning Objective 3.4

35. The Effect of Demand and Supply Shifts on Equilibrium FIGURE 3-10 The Effect of an Increase in Demand on Equilibrium The Effect of Shifts in Demand on Equilibrium Learning Objective 3.4

36. The Effect of Demand and Supply Shifts on Equilibrium FIGURE 3-11 Shifts in Demand and Supply over Time The Effect of Shifts in Demand and Supply over Time Learning Objective 3.4

37. The Effect of Demand and Supply Shifts on Equilibrium TABLE 3-3 How Shifts in Demand and Supply Affect Equilibrium Price ( P ) and Quantity ( Q ) The Effect of Shifts in Demand and Supply over Time Learning Objective 3.4 Q decreases P increases Q increases P decreases Q unchanged P unchanged DEMAND CURVE UNCHANGED Q decreases P decreases or increases Q increases or decreases P decreases Q decreases P decreases DEMAND CURVE SHIFTS TO THE LEFT Q increases or decreases P increases Q increases P increases or decreases Q increases P increases DEMAND CURVE SHIFTS TO THE RIGHT SUPPLY CURVE SHIFTS TO THE LEFT SUPPLY CURVE SHIFTS TO THE RIGHT SUPPLY CURVE UNCHANGED

38. High Demand and Low Prices in the Lobster Market? Learning Objective 3.4 Supply and demand for lobster both increase during the summer, but the increase in supply is greater than the increase in demand, therefore, equilibrium price falls. Solved Problem 3-4

39. The Effect of Demand and Supply Shifts on Equilibrium Shifts in a Curve versus Movements along a Curve Learning Objective 3.4 When analyzing markets using demand and supply curves, it is important to remember that when a shift in a demand or supply curve causes a change in equilibrium price, the change in price does not cause a further shift in demand or supply.

40. The Effect of Demand and Supply Shifts on Equilibrium Shifts in a Curve versus Movements along a Curve Learning Objective 3.4 Don’t Let This Happen to YOU! Remember: A Change in a Good’s Price Does Not Cause the Demand or Supply Curve to Shift

41. An Inside LOOK How Does the iPhone Help Apple and AT&T? Apple Coup: How Steve Jobs Played Hardball in iPhone Birth

42. Ceteris paribus (“all else equal”) Competitive market equilibrium Complements Demand curve Demand schedule Demographics Income effect Inferior good Law of demand Law of supply Market demand Market equilibrium Normal good Perfectly competitive market Quantity demanded Quantity supplied Shortage Substitutes Substitution effect Supply curve Supply schedule Surplus Technological change K e y T e r m s