Demand and Supply

Applications

Demand Responsiveness
P

With steep demand curve,

quantity demanded drops
only a little.

Steeper D Less steep D

Q
4
 Demand Responsiveness
P

With less steep demand

curve, quantity demanded
drops much more.

Steeper D Less steep D

Q
6

Supply Responsiveness
P
Steeper S
With steep S,
quantity
supplied rises Less Steep S
little.

Q
10
 Supply Responsiveness
P
Steeper S
With less steep
S, quantity
supplied rises a
lot. Less Steep S

Q
11

Rent Control

Bedroom

Living Room/
Kitchen

Bath

12
 Equilibrium without Rent Control
P S

P1

Q1 Q
13

Excess Demand under Rent Control

P S

P1
Excess demand

PC

QC Q1 Q
16
 Rent Control with Steep Supply Curve

P S

P1

PC

QC Q1 Q
17

Excise Tax

A per-unit tax on a good.

Example: gas tax of 50 cent per gallon.

18
 Equilibrium before tax
P

S1

$1.00

D
10 b Q
19

Excise tax causes supply curve

to shift up by amount of tax.
P
S2
$0.50 S1

$0.50

D
Q
20
 Price rises by LESS than
P
the amount of tax.
S2

S1
$0.50
$1.20
$0.20
$1.00

D
8b 10 b Q
22

Tax Burden is Shared by

Consumers and Producers
P
S2

S1
$1.20
Consumers pay 20
$1.00
cents more per
gallon.

D
8b Q
23
 Tax Burden is Shared by
Consumers and Producers
P
S2

S1
$1.20

$1.00
Producers receive 30
cents less per gallon.
$0.70

D
8b Q
24

Tax Burden is Shared by

Consumers and Producers
P
S2

Consumer’s
S1
Tax Burden

Producer’s Tax
Burden
D
Q
25
 When demand curve is steep
consumers pay most of tax burden.
P
S2
Consumers’ S1
tax burden

Producers’
tax burden
D
Q
26

When demand curve is relatively flat

producers pay most of tax burden.
P S2

S1
Consumers’
tax burden

Producers’
tax burden

Q
27
 When supply curve is steep
producers pay most of tax burden.
P S2
S1
Consumers’
tax burden

Producers’
D
tax burden

Q
28

When supply curve is relatively flat

consumers pay most of tax burden.
P

S2
Consumers’
tax burden
S1

Producers’
D
tax burden

Q
29
To make consumers pay most of tax:

Place tax on goods with steep

demand or relatively flat supply.

To make producers pay most of tax:

Place tax on goods with steep

supply or relatively flat demand.

30