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2-8 Economics — A Primer [CH 2

The Supply Curve. Knowing only the purchasing behavior of hamburger buyers is

not enough to determine how many hamburgers will be sold. Knowing the supply
behavior of hamburger suppliers is also a necessity.
The quantity of hamburgers meat processors are willing to supply each week
depends on a number of factors, including the sales price of the hamburgers, the price

of cattle and/or beef halves, the inputs used in making the hamburgers, technology,
taxes, and the number of competitors (suppliers) in the market. The supply curve is an
supply curve historic schedule that shows the relationship between different prices and the quantity
Schedule that shows the of hamburgers that suppliers are willing to supply at differing prices. Figure 2.1, a
relationship between
different prices and the supply curve, illustrates the basic law of supply: The quantity of hamburgers supplied
quantity supplied at each rises with higher prices.
price.
The Equilibrium Price. To determining the quantity of hamburgers actually sold in
a market each week, neither the demand curve nor the supply curve is singularly
sufficient. The two are actually combined, as in Figure 2.1, which shows the
interaction of suppliers and demanders. Where the two intersect results in a single

equilibrium price equilibrium price paid by the demanders and accepted by the suppliers. The
Price at which quantity equilibrium price is the price at which the quantity supplied by the suppliers is equal to
supplied is equal to the quantity demanded by the demanders.
quantity demanded. Using Figure 2.1, the intersection of the demand and supply curves shows the

equilibrium price at around $2.20 per hamburger. At this price, suppliers are willing to
offer 800 hamburgers for sale each week and demanders will purchase all 800
hamburgers. Both groups are satisfied at the equilibrium price.
If the actual price in the market is different from the equilibrium price, then

suppliers and demanders will generate forces that return the prevailing price to the
equilibrium price. How does this work? Assume that in Figure 2.1 the price of
hamburgers is $2.10 rather than $2.20 each. At $2.10, demanders want to buy 1,100
hamburgers a week, but suppliers will only offer 600. If each person buys only one

hamburger, the first 600 will be able to complete their purchases, but there will be 500
willing to buy hamburgers at that price who cannot do so. Some buyers are likely to
offer a higher price to guarantee that they can get hamburgers the following week. This
price competition among demanders will drive the price back up to the equilibrium

price.
If suppliers raise the price above the equilibrium price, not all the hamburgers
produced will be sold. For example, at $2.40 per hamburger, suppliers will produce
1,100 hamburgers, but our chart indicates that demanders will purchase only 400. As a

result, suppliers will try to take business from their competitors by lowering their
prices. This will push the price back down to the equilibrium price. At the equilibrium
price, there are no frustrated demanders or suppliers, nor pressure for the price to
change.

Changes in Demand versus Changes in Quantity Demanded. Demand curves are

historical representations and are drawn assuming that the determinants of demand—
number of demanders in a market, product preferences, income, price of substitute
goods, and price of complementary goods and consumer expectations are constant and
have a specific value. However, when change occurs, the demand curve shifts.
As the demand curve indicates, when the price of hamburgers changes, there is
movement along the demand curve. When the determinants of demand change, such as
a change in the demanders' income, we expect a change in the number of hamburgers
to be sold at every price. This means a whole new demand curve can be established. If
incomes rise, then the demand curve shifts to the right. If incomes fall, the demand
curve shifts to the left. One can easily recognize then that in fact, a whole family of
demand curves exists, one for each level of income within a society. This can explain
why in a wealthy neighborhood, hamburgers are more expensive than in a poorer
neighborhood.
In any case, every time the demand shifts, there is a new intersection with the
supply curve and a new equilibrium price. As Figure 2.2 shows, when demand

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