PRINCIPLES OF

ECONOMICS
Chapter 4 – The Market Forces of Supply and Demand
THE MARKET FORCES OF
SUPPLY AND DEMAND

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 Competitive Perfectly Competitive
Market
Market Market

Markets and Competition

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 Quantity Law of
Demanded Demand

DEMAND
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 Demand Curve
Shifters

Income Related Goods

Normal Goods Inferior Goods Substitutes Complements

DEMAND
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Quantity Law of
Supplied Supply

SUPPLY
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Supply Curve
Shifters

SUPPLY
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SUPPLY AND
DEMAND

Equilibrium

Excess
Supply

Excess
Demand
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 SUPPLY AND
DEMAND
Changes in No Change = Same curve
Increase = Shift to the Right
Equilibrium Decrease = Shift to the Left

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Sheet 3

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 Supply
Example 1
Demand
Beverages and pizza are Q. Supplied
complements because P
Q. Demanded
they are often enjoyed S1
Price
together.
When the price of P1
beverages rises, what P2
happens to the supply,
demand, quantity
supplied, quantity
D2 D1
demanded, and price in
Q
the market for pizza? Q2 Q1

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 Example 2
Using supply-and-demand
diagrams, show the effect of
the following events on the
market for sweatshirts.
a. A hurricane in South
Carolina damages the
cotton crop.
b. The price of leather
jackets falls.
c. All colleges require
morning exercise in
appropriate attire.
d. New Knitting machines
are invented.
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 Example 3
Ketchup is a complement
(as well as a condiment)
for hot dogs.
If the price of hot dogs
rises, what happens to the
market for ketchup? For
tomatoes? For tomato
juice? For orange juice?

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 Example 4
Because bagels and cream cheese
are often eaten together, they are
complements.
a. We observe that both the
equilibrium price of cream
cheese and the equilibrium
quantity of bagels have risen.
What could be responsible for
this pattern - fall in the price of
flour or a fall in the price of
milk? Illustrate and explain your
answer.
Price of Flour

Price of Cream Cheese

Quantity of Bagels M. Elnahas 2021 14
 Example 4
Because bagels and cream cheese
are often eaten together, they are
complements.
b. Suppose instead that the
equilibrium price of cream
cheese has risen but the
equilibrium quantity of bagels
has fallen. What could be
responsible for this pattern -
rise in the price of flour or a
rise in the price of milk?
Illustrate and explain your
answer.

Price of
Price of Quantity
Cream
Milk of Bagels
Cheese

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ANY
QUESTIONS?

THANK YOU

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