Subject:
Economics
Material Type:
Module
Level:
Community College / Lower Division, College / Upper Division
Provider:
Ohio Open Ed Collaborative
Tags:
Demand and Supply, Oss0042
License:
Creative Commons Attribution Non-Commercial
Language:
English
Media Formats:
eBook, Text/HTML

Education Standards (3)

Supply, Demand and Market Equilibrium Resources

Supply, Demand and Market Equilibrium Resources

Overview

This topic covers the basics of demand and supply for a principles of microeconomics course.  Students will learn about the determinants of market demand and market supply for a good or service.  It enables students to employ an analytical tool in expressing the potential impacts of changes in market conditions on the consumers and sellers of a good or service.  It provides the basic tools to help students understand the impacts of policies that affect various economic units.

Learning Objectives

  1. Define the quantity demanded in a market and demonstrate using a demand curve (1,16)

  2. Distinguish between change in quantity demanded and change in demand (1,16)

  3. Identify and analyze demand shifters (1,16)

  4. Define the quantity supplied in a market and demonstrate using a supply curve (1,16)

  5. Distinguish between change in quantity supplied and change in supply (1,16)

  6. Identify and analyze supply shifters (1,16)

  7. Use a supply and demand graph to illustrate market equilibrium (1,16)

  8. Understand the concepts of surpluses and shortages (1,16)

  9. Explain the impact of a change in supply or demand on the equilibrium outcome (1,16)

NOTE: This Module meets Ohio TAG's 1 and 16 for an Intro to Microeconomics Course OSS004

Recommended Textbook Resources

Principles of Microeconomics 2ePrinciples of Microeconomics 2e Book Cover

Author: OpenStax

Full Citation: Taylor, T., Greenlaw, S. et. al. (2017) “Demand and Supply” Principles of Microeconomics 2nd Ed. OpenStax CNX.

 

 

 

Chapter 3: Introduction to Demand and Supply

This is an excellent treatment of demand and supply analysis with numerous timely applications, both in the chapter and additional links to examples embedded at appropriate junctures in the chapter.  It is rather comprehensive for instructors who would like to introduce students to additional topics within the same chapter including price floors and ceilings, consumer and producer surplus, and economic efficiency.  The chapter covers all the learning objectives in reasonable detail.

Supplemental Content/Alternative Resources

Alternative Textbook Resource

Principles of EconomicsPrinciples of Economics Book Cover

Chapter 3: Demand and Supply 

Sections 3.1, 3.2, and 3.3

Full Citation: University of Minnesota Libraries., Minneapolis, MN.  “Demand and Supply.” Principles of Economics, Publishing Ed. 2016. University of Minnesota, (CC BY-NC-SA 4.0) 2016.

Chapter 4: Section 4-1 Putting Demand and Supply to Work

The two resources above provide a very good coverage of the demand and supply model.  The material presentation is easy to follow for students in introductory microeconomics.  Though not as comprehensive as the main text, adding section 4.1 expands the discussion to applications on the personal computer industry, the oil market, and the stock market which are related to students. 

Video Resources 

Marginal Revolution University. “Supply, Demand, and Equilibrium”

In a series of short videos under topic 2, Alex Tabarrok discusses the demand and supply model and its applications.  For instructors covering the basics of demand and applications, the following videos are more appropriate and address all the learning outcomes: The Demand Curve, The Supply Curve, The Equilibrium Price and Quantity, The Demand Curve Shifts, The Supply Curve Shifts, and Does the Equilibrium Model Work?  Other short videos explore producer and producer surplus in more detail.

Federal Reserve Bank of St. Louis

This is an economic lowdown video that is part of a series from the Federal Reserve Bank of St. Louis.  It is an excellent supplement to the introductory discussion on the demand curve, change in demand, and change in quantity demanded.

Supply, The Economic Lowdown

An economic lowdown video with additional applications on supply, change in quantity supplied, and change in supply.

Equilibrium, The Economic Lowdown

An economic lowdown video on market equilibrium, market surplus, and market shortage.

Active Learning Exercise

Exercise 1

  1. Use this link as a source of current articles: www.cnbc.com/supply-and-demand
     
  2. Require that each student find two current articles that apply the concepts of demand and supply.  Identify and explain sources of shifts in demand and supply in the referenced markets.  What are the potential impacts of these demand and supply shifts on equilibrium price and quantity in the referenced markets? Could you identify other potential demand and supply shifters in the referenced markets that are not discussed by the articles. For reports on supply and demand determinants in the global oil markets, go to www.iea.org (International Energy Commission) and search <world oil demand and world oil supply).

Exercise 2

A Coming Crisis in Teaching? Teacher Supply, Demand, and Shortages in the U.S. 

Palo Alto, CA: Learning Policy Institute. Sutcher, L., Darling-Hammond, L., and Carver-Thomas, D. (2016). Licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Read the article on demand for and supply of teachers, and the reasons for teacher shortages:

  1. Identify examples of movements along the demand and supply curves for teachers.
  2. Identify and explain two demand shifters from the article.
  3. Identify and explain two supply shifters from the article.
  4. Explain how teacher shortage may result from a supply shift or a demand shift.
  5. Explain the expected impacts of demand and supply shifts on average teacher wages.

Exercise 3

Prices: The Marketplace’s Communication System

Yetter, E.A. (2013). Page One Economics Newsletter, Federal Reserve Bank of St. Louis (April Newsletter)

Read the article discussing the role of prices in markets; students will discuss the reasons for shortages and the role of prices in reducing or eliminating shortages.  

  1. What was the reason for the shortage of in-cabin overhead and under-seat storage space in airlines?
  2. How did the airlines reduce the shortage?
  3. Identify and describe a familiar market in which a shortage currently exists or there is potential for a shortage in the product or service.  Would a change in price provide an appropriate incentive to correct the shortage? Explain?

Questions and Problems

Supply, Demand and Market Equilibrium

Questions and Problems

Instructors can add a Google Doc of the Supply, Demand and Market Equilibrium Questions and Problems to their Google Drive or download a Word File of the Supply, Demand and Market Equilibrium Questions and Problems.

Questions:

  1. Assume that the average teacher wage (equivalent to the equilibrium wage) is $50,000 in River City.  Identify whether each of the following demand/supply change would cause a teacher shortage or teacher surplus at the wage rate of $50,000.
    1. A decrease in the demand for teachers.
    2. Teacher attrition leading to a decrease in the supply of teachers.
  2. State whether each of the following is true or false. If false, what is the correct statement?
    1. At a price above equilibrium, quantity supplied exceeds quantity demanded.
    2. At a price below equilibrium, quantity supplied exceeds quantity demanded.
    3. A shortage will cause a decrease in price, while a surplus will cause an increase in price.
  3. State whether each of the following is true or false, and explain your response.
    1. In the market for personal computers, if the price of computer chips (an input) increases, the supply curve will shift to the left, and the equilibrium price will decrease.
    2. Assume that personal computers are normal goods.  If there is increased consumer confidence that household incomes will be higher in the future, the demand for personal computers will increase leading to a decrease in equilibrium price.
  4. In the market for sport utility vehicles (SUVs), identify the impact of the following on equilibrium price and quantity.
    1. An increase in the price of gasoline, a complementary good.
    2. An increase in the price of sedan vehicles, a substitute good.
  5. In the market of family homes in a city, identify three factors that will lead to an increase in demand and three factors that will cause a decrease in supply.
  6. The demand for and supply of natural gas is influenced by a variety of factors.  Discuss the impact of each of the following on market demand or market supply, and then the potential impacts on equilibrium price and quantity.
    1. Below normal temperatures for a most of the winter months
    2. A strong U.S. economy
    3. Technological advances in the production of natural gas
  7. In a conversation with another student, you heard him say “a decrease in the price of cell phones will cause an increase in the demand for cell phones.”  What is the difference between a change in demand and a change in quantity demand? Based on your answer, is the student correct?
  8. Identify the simultaneous changes in demand and supply that will lead to each of the results below.
    1. An increase in equilibrium price and an indeterminate effect on equilibrium quantity.
    2. An increase in equilibrium quantity and an indeterminate effect on equilibrium price.
    3. A decrease in equilibrium price and an indeterminate effect on equilibrium quantity.

Answers:

  1. .....
    1. Teacher surplus due to a leftward shift in the demand curve.  At $50,000, quantity demanded is less for the new demand curve than the equilibrium quantity. Hence, a positive gap between quantity supplied and quantity demanded.
    2. Teacher shortage due to a leftward shift in the supply curve.  At $50,000, quantity supplied is less for the new supply curve than the equilibrium quantity.  Hence, a negative gap between quantity supplied and quantity demanded.
  2. .....
    1. True
    2. False.  Quantity supplied is less than quantity demanded.
    3. False. A shortage will cause an increase in price and a surplus will cause a decrease in price.
  3. ....
    1. False.  The supply curve will shift to the left and the equilibrium price will increase.
    2. False. The demand for personal computers will increase leading to an increase in the equilibrium price.
  4. .....
    1. An increase in the price of gasoline will cause a decrease in the demand for SUVs and a decrease in equilibrium price.
    2. An increase in the price of sedan vehicles will cause an increase in the demand for SUVs, and an increase in the equilibrium price.
  5. Factors that will lead to an increase in the demand for family homes are increase in household incomes, increase in city population, and the expectation that incomes will be higher in the future (increased consumer confidence).  Factors that will cause a decrease in the supply of family homes are a decrease in the number of builders in the city, an increase in taxes to builders of family homes, and an increase in the price of materials used in constructing family homes.
  6. .....
    1. An increase in the demand for natural gas; increase in equilibrium quantity and price
    2. An increase in the demand for natural gas; increase in equilibrium quantity and price
    3. An increase in the supply of natural gas; an increase in equilibrium quantity, and a decrease in equilibrium price.
  7. The statement is incorrect since the student should have said that a decrease in the price of cell phone, assuming that all other factors are held constant, will cause an increase in quantity demanded.
  8. .....
    1. An increase in demand and a decrease in supply
    2. An increase in demand and an increase in supply
    3. A decrease in demand and an increase in supply