Professional Documents
Culture Documents
N. GREGORY MANKIW
PRINCIPLES OF
ECONOMICS
Eight Edition
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9/21/2021
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Demand
• Quantity demanded
– Amount of a good that buyers are willing
and able to purchase
• Law of demand
– Other things equal
– When the price of a good rises, the
quantity demanded of the good falls
– When the price falls, the quantity
demanded rises
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 5
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© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 6
management system for classroom use.
2
9/21/2021
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Demand
• Market demand
– Sum of all individual demands for a good
or service
– Market demand curve: sum the individual
demand curves horizontally
• To find the total quantity demanded at any
price, we add the individual quantities
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 8
management system for classroom use.
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 9
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P Qd
P
(Market)
$6.00
$0.00 24
$5.00
1.00 21
$4.00 2.00 18
$3.00 3.00 15
4.00 12
$2.00
5.00 9
$1.00 6.00 6
$0.00
Q
0 5 10 15 20 25
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 10
management system for classroom use.
10
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 11
management system for classroom use.
11
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 12
management system for classroom use.
12
4
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© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 13
management system for classroom use.
13
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 14
management system for classroom use.
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© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 17
management system for classroom use.
17
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 18
management system for classroom use.
18
6
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 19
management system for classroom use.
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D1 D2
Q1 Q2 Quantity of
music downloads
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 21
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21
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P1
P2
D1
Q1 Q2 Quantity of
music downloads
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 22
management system for classroom use.
22
D2 D1
Q2 Q1 Quantity of
music downloads
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 23
management system for classroom use.
23
Supply
• Quantity supplied
– Amount of a good
– Sellers are willing and able to sell
• Law of supply
– Other things equal
– When the price of a good rises, the
quantity supplied of the good rises
– When the price falls, the quantity supplied
falls
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 24
management system for classroom use.
24
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 25
management system for classroom use.
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Price Quantity
P of of lattes
$6.00 lattes supplied
$0.00 0
$5.00
1.00 3
$4.00 2.00 6
$3.00 3.00 9
4.00 12
$2.00
5.00 15
$1.00 6.00 18
$0.00
Q
0 5 10 15
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 26
management system for classroom use.
26
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 27
management system for classroom use.
27
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$0.00
0 5 10 15 20 25 30 35 Q
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 29
management system for classroom use.
29
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 30
management system for classroom use.
30
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 31
management system for classroom use.
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$0.00
Q
0 5 10 15 20 25 30 35
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 32
management system for classroom use.
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 35
management system for classroom use.
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36
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Q2 Q1 Quantity of tax
return software
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 37
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37
Price of
S curve shifts to the
tax return right:
S1 S2
software
at each price, Q
P1 increases.
Q1 Q2 Quantity of tax
return software
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 38
management system for classroom use.
38
Quantity of tax
return software
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 39
management system for classroom use.
39
13
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 40
management system for classroom use.
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41
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 42
management system for classroom use.
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44
45
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$0.00 Shortage
Q
0 5 10 15 20 25 30 35
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 46
management system for classroom use.
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 49
management system for classroom use.
49
P1
D1
Q
Q1
quantity of
hybrid cars
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 52
management system for classroom use.
52
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 53
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P1
P2
STEP 3: Q rises, but the D2
effect on P is ambiguous: D1
Q
Q1 Q2
But if supply increases
more than demand, P falls.
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 56
management system for classroom use.
56
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 57
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3. P falls, Q rises D1
Q
Q1 Q2
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3. P falls.
Effect on Q is ambiguous:
- the fall in demand reduces Q,
- the increase in supply increases Q.
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Summary
• Economists use the model of supply and demand
to analyze competitive markets.
– Many buyers and sellers, all are price takers
• The demand curve shows how the quantity of a
good demanded depends on the price.
– Law of demand: as the price of a good falls, the
quantity demanded rises; the D curve slopes
downward
– Other determinants of demand: income, prices of
substitutes and complements, tastes, expectations,
and number of buyers.
– If one of these factors changes, the D curve shifts
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Summary
• The supply curve shows how the quantity of a
good supplied depends on the price.
– Law of supply: as the price of a good rises, the
quantity supplied rises; the S curve slopes upward.
• Other determinants of supply: input prices,
technology, expectations, and number of sellers.
– If one of these factors changes, supply curve shifts.
• The intersection of the supply and demand curves
determines the market equilibrium.
– At the equilibrium price, quantity demanded =
quantity supplied
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Summary
• The behavior of buyers and sellers naturally drives
markets toward their equilibrium.
– When the market price is above the equilibrium
price, there is a surplus of the good, which
causes the market price to fall.
– When the market price is below the equilibrium
price, there is a shortage, which causes the
market price to rise.
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Summary
• To analyze how any event influences a market, we
use the supply-and-demand diagram to examine
how the event affects the equilibrium price and
quantity.
1. Decide whether the event shifts the supply curve
or the demand curve (or both).
2. Decide in which direction the curve shifts.
3. Compare the new equilibrium with the initial one.
• In market economies, prices are the signals that
guide economic decisions and thereby allocate
scarce resources.
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