1. The Market Forces of Supply and Demand

8. Demand Schedule

10. Demand Curve Rs.3 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0

19. Changes in Quantity Demanded 0 D 1 Price of Cigarettes per Pack Number of Cigarettes Smoked per Day A tax that raises the price of cigarettes results in a movement along the demand curve. A 20 2.00 C Rs.4.00 12

21. Changes in Demand 0 D 1 Price of Ice-Cream Cone Quantity of Ice-Cream Cones D 3 D 2 Increase in demand Decrease in demand

22. Change in Quantity Demanded versus Change in Demand Variables that Affect Quantity Demanded A Change in This Variable . . . Price Represents a movement along the demand curve Income Shifts the demand curve Prices of related goods Shifts the demand curve Tastes Shifts the demand curve Expectations Shifts the demand curve Number of buyers Shifts the demand curve

24. Consumer Income Normal Good Rs.3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in demand An increase in income... D 1 D 2

25. Consumer Income Inferior Good Rs.3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Decrease in demand An increase in income... D 1 D 2

33. Supply Schedule

35. Supply Curve Rs.3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0

41. Change in Quantity Supplied 1 5 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C A rise in the price of ice cream cones results in a movement along the supply curve . Rs.3.00

43. Change in Supply Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1 S 2 S 3 Increase in Supply Decrease in Supply

44. Change in Quantity Supplied versus Change in Supply

47. Supply and Demand Together Demand Schedule Supply Schedule At Rs.2.00, the quantity demanded is equal to the quantity supplied!

48. Equilibrium of Supply and Demand Price of Ice-Cream Cone Quantity of Ice-Cream Cones 2 1 3 4 5 6 7 8 9 10 12 11 0 Rs.3.00 2.50 2.00 1.50 1.00 0.50 Supply Demand Equilibrium

49. Excess Supply Price of Ice-Cream Cone Quantity of Ice-Cream Cones 2 1 3 4 5 6 7 8 9 10 12 11 0 Rs.3.00 2.50 2.00 1.50 1.00 0.50 Supply Demand Surplus

50. Surplus When the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded. There is excess supply or a surplus. Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

51. Excess Demand Quantity of Ice-Cream Cones Price of Ice-Cream Cone Rs.2.00 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Supply Demand Rs.1.50 Shortage

52. Shortage When the price is below the equilibrium price, the quantity demanded exceeds the quantity supplied. There is excess demand or a shortage. Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

54. How an Increase in Demand Affects the Equilibrium Price of Ice-Cream Cone 2.00 0 7 Quantity of Ice-Cream Cones Supply Initial equilibrium D 1 1. Hot weather increases the demand for ice cream... D 2 2. ...resulting in a higher price... Rs.2.50 10 3. ...and a higher quantity sold. New equilibrium

55. How a Decrease in Supply Affects the Equilibrium Price of Ice-Cream Cone 2.00 0 1 2 3 4 7 8 9 11 12 Quantity of Ice-Cream Cones 13 Demand Initial equilibrium S 1 10 1. Shortage of milk reduces the supply of ice cream... New equilibrium S 2 2. ...resulting in a higher price... Rs.2.50 3. ...and a lower quantity sold.