Chapter Three: Module Intro -- Supply and Demand

Supply and Demand analysis is in many ways the cornerstone of economics. So much of what we do in economics centers around these concepts.

Why is it that sports players earn so much income, while teachers earn far less? Why does the price of Nike shoes fall when the price of Reeboks fall? Supply and demand analysis holds the key to these puzzles.

In this chapter, we explain the law of demand and the demand curve. Similarly, we examine the law of supply and the supply curve. We then put the forces of supply and demand together to determine market equilibrium.

We distinguish between shifts and movements along the demand and supply curves, and show how a shift in either of the curves leads to a new equilibrium position. We end by examining the impact of government regulations in markets via price ceiling and price floors.

We recommend that you read the lecture notes first, then test your knowledge with the on-line quiz. Reinforce the concepts by reviewing the summary.

Last update: August 2003

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