Chapter Three

Demand, Supply, and Market Equilibrium

INSTRUCTIONAL OBJECTIVES

After completing this chapter, students should be able to:

1. Explain who and what demand and supply represent.

2. Differentiate between demand and quantity demanded; and supply and quantity supplied.

3. Graph demand and supply curves when given demand and supply schedules.

4. State the Law of Demand and the Law of Supply, and explain why price and quantity demanded are inversely related, and why price and quantity supplied are directly related.

5. List the major determinants of demand, and explain how a change in each will affect the demand curve.

6. List the major determinants of supply, and explain how a change in each will affect the supply curve.

7. Explain the concept of equilibrium price and quantity.

8. Illustrate graphically equilibrium price and quantity.

9. Explain the rationing function of prices.

10. Define productive and allocative efficiency, and explain how competitive markets achieve them.

11. Explain and graph the effects of changes in demand and supply on equilibrium price and quantity, including simultaneous changes in demand and supply.

12. Define price ceilings and price floors, and provide examples.

13. Graph and explain the consequences of government-set prices.

14. Define and identify terms and concepts listed at the end of the chapter.