Applications of Demand and Supply

Read this chapter and attempt the "Try It" exercises. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve after completing these chapters. This will help you prepare for similar types of analyses in the units ahead.

4.1 Putting Demand and Supply to Work


  1. Learn how to apply the model of demand and supply to the behavior of equilibrium prices and output in a variety of markets.
  2. Learn basic vocabulary on the organization of firms and explain how the model of demand and supply can be used to understand prices of shares of stock.

A shift in either demand or supply, or in both, leads to a change in equilibrium price and equilibrium quantity. We begin this chapter by examining markets in which prices adjust quickly to changes in demand or supply: the market for personal computers, the markets for crude oil and gasoline, and the stock market. These markets are thus direct applications of the model of demand and supply.