Mankiw S Answers

Principles of Economics chapters
1. Ten Principles of Economics

2. Thinking Like an Economist
3. Interdependence and the Gains from Trade
4. The Market Forces of Supply and Demand
5. Elasticity and Applications
6. Supply, Demand, and Government Policies
7. Consumers, Producers and the Efficiency of Markets
8. Application: The Costs of Taxation
9. Application: International Trade
10. Externalities
11. Goods and Common Resources
12. The Tax System
13. The Costs of Production
14. The Competitive Firm
15. Monopoly
16. Oligopoly
17. Monopolistic Competition
18. The Markets for the Factors of Production
19. Earnings and Discrimination
20. The Distribution of Income
21. The Theory of Consumer Choice
22. Measuring a Nation's Wealth
23. Measuring the Cost of Living
24. Production and Growth
25. Financial Markets: Saving, Investment,
and Interest Rates
26. Unemployment
27. The Monetary System
28. Inflation: Its Causes and Costs
29. Open-Economy Macroeconomics: Basic Concepts
30. A Macroeconomic Theory of the Open Economy
31. Aggregate Demand and Aggregate Supply
32. Monetary and Fiscal Policy Determinants of
Aggregate Demand
33. The Short-Run Tradeoff between Inflation
andUnemployment
34. Five Debates over Macroeconomic Policy
Principles of
Microeconomics
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Principles of
Macroeconomics
chapters
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1-4
1\2
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$2
82
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72
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112
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5%%I(59I*a((N#*6&-"=50@(-&$;(-%#*(%7(%&#(/"'9%/G6(%&'.&'(B%&58(=*(8*?%'*8('%(-*89$"5
$"#*(';"/(96(/%B(';*($"6*2((P%&58(';"'(=*(*779$9*/'a((K7(0%&(';9/I(';"'(8%$'%#6(7%#-("
-%/%.%50("/8(#*6'#9$'(;*"5';($"#*('%(I**.(';*9#(9/$%-*6(;9<;@(0%&(-9<;'(';9/I(6%2(()&'
-%#*(59I*50@(97(';*(<%?*#/-*/'(-"/8"'*8(9/$#*"6*8(6.*/89/<(%/(;*"5';($"#*@(';*
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1M2
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6*#?9$*62
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$2
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1-5
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1-6
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'9*%#4*5>($%66*$'(;"'">("/;('9*/("/"60?*('9*5*(;"'"(4/("/("''*-.'('%(=*#4:0(%#(#*:&'*('9*4#
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#*60(%/(/"'&#"6(*B.*#4-*/'52
D2
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"/5@*#2((F55&-.'4%/5($"/(-"7*('9*(@%#6;(*"54*#('%(&/;*#5'"/;2
G2
F/(*$%/%-4$(-%;*6($"/A'(;*5$#48*(#*"64'0(*B"$'60(8*$"&5*(4'(@%&6;(8*('%%($%-.64$"'*;
'%(&/;*#5'"/;2((F(-%;*6(45("(54-.64:4$"'4%/('9"'("66%@5('9*(*$%/%-45'('%(5**(@9"'(45
'#&60(4-.%#'"/'2
H2
I4E&#*(DJ1(59%@5("(.#%;&$'4%/(.%5548464'4*5(:#%/'4*#(8*'@**/(-467("/;($%%74*5(KLLI M2(
C:("(;45*"5*(74665(9"6:(%:('9*(*$%/%-0A5($%@(.%.&6"'4%/>(6*55(-467(.#%;&$'4%/(45(.%55486*>
5%('9*(LLI(594:'5(4/@"#;(KLLI M2((N%'*('9"'(4:('9*(*$%/%-0(.#%;&$*5("66($%%74*5>(5%(4'
;%*5/A'(/**;("/0($%@5>('9*/(.#%;&$'4%/(45(&/"::*$'*;2(()&'(4:('9*(*$%/%-0(.#%;&$*5("/0
-467("'("66>('9*/('9*#*(@466(8*(6*55(.#%;&$'4%/(.%55486*(":'*#('9*(;45*"5*(94'52
Quantity of Milk Produced
12
PPF1
PPF2
Quantity of Cookies Produced
!"#$%&#'()#"$*(+(,%-."/0
2-1
O2
<9*('@%(5&8:4*6;5(4/(*$%/%-4$5("#*(-4$#%*$%/%-4$5("/;(-"$#%*$%/%-4$52(
P4$#%*$%/%-4$5(45('9*(5'&;0(%:(9%@(9%&5*9%6;5("/;(:4#-5(-"7*(;*$454%/5("/;(9%@('9*0
4/'*#"$'(4/(5.*$4:4$(-"#7*'52((P"$#%*$%/%-4$5(45('9*(5'&;0(%:(*$%/%-0@4;*(.9*/%-*/"2
Q2
L%54'4=*(5'"'*-*/'5("#*(;*5$#4.'4=*("/;(-"7*("($6"4-("8%&'(9%@('9*(@%#6;(45>(@946*
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8*2((!*#*A5("/(*B"-.6*2((L%54'4=*R((S*#0(#".4;(-%/*0(E#%@'9(45('9*($"&5*(%:(4/:6"'4%/2(
N%#-"'4=*R((<9*(E%=*#/-*/'(59%&6;(7**.(-%/*0(E#%@'9(6%@2
T2
<9*(,%&/$46(%:(3$%/%-4$(F;=45*#5(%:("(E#%&.(%:(*$%/%-45'5(@9%($%/5&6'(@4'9('9*
.#*54;*/'(%:('9*(U/4'*;(V'"'*5("8%&'(*$%/%-4$(-"''*#52((<9*($%&/$46($%/545'5(%:('9#**
-*-8*#5("/;("(5'"::(%:(5*=*#"6(;%?*/(*$%/%-45'52((C'(@#4'*5('9*("//&"6(!"#$#%&"'()*#+,
#-',.)'/+)0&1)$,2
W2
3$%/%-45'5(5%-*'4-*5(%::*#($%/:64$'4/E(";=4$*('%(.%64$0-"7*#5(:%#('9#**(#*"5%/5R((K1M(
3$%/%-45'5(-"0(;45"E#**("8%&'('9*(="64;4'0(%:("6'*#/"'4=*(.%54'4=*('9*%#4*5("8%&'(9%@
'9*(@%#6;(@%#75X(KDM(3$%/%-45'5(-"0(9"=*(;4::*#*/'(="6&*5("/;>('9*#*:%#*>(;4::*#*/'
/%#-"'4=*(=4*@5("8%&'(@9"'(.%64$0(59%&6;('#0('%("$$%-.6459X(KGM(3$%/%-45'5(-"0(4/
:"$'("E#**>("/;(0*'('9*(";=4$*(%:($9"#6"'"/5(%#($#"/75(%85$&#*5('9*($%/5*/5&52
='3>?&45(#-@(<$$?,2#%,3-5*((<-5;&'5
12
P"/0("/5@*#5("#*(.%55486*2
D2
"2
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Y&"64'02
82
N%=*65("#*(*"$9(&/4Y&*>(5%('9*0("#*(Y&4'*(;45'4/E&459"86*2
$2
Z9*"'(.#%;&$*;(80(%/*(:"#-*#(45($%-.6*'*60(4/;45'4/E&459"86*(:#%-(@9*"'
.#%;&$*;(80("/%'9*#2
;2
I"5'(:%%;(45(-&$9(-%#*(;45'4/E&459"86*>(@94$9(45(@90(0%&(5**(5%(-&$9
";=*#'454/E(:%#(4'>("5(:4#-5('#0('%(-"7*('9*4#(.#%;&$'5(5**-(;4::*#*/'(:#%-(%'9*#
:4#-5A(.#%;&$'52((
G2
V**(I4E&#*(DJDX('9*(:%&#('#"/5"$'4%/5("#*(59%@/2
!"#$%&#'()#"$*(+(,%-."/0
2-2
c. $7
a. $1
c. $7
a. $1
Markets for
Goods and Services
a. Quart of milk
c. Movie ticket
a. Quart of milk
c. Movie ticket
Firms
Households
d. Acmes capital
b. One hour
of work
Markets for
Factors of Production
b. $4.50
d. $10,000
d. Acmes capital
b. One hour
of work
b. $4.50
d. $10,000
<9*($4#$&6"#(:6%@(-%;*6(*B$6&;*5('9*(#%6*5(%:(E%=*#/-*/'("/;(4/'*#/"'4%/"6('#";*2((C'A5
#*"5%/"86*('%(*B$6&;*('9*5*(:*"'&#*5(4/('#04/E('%(*B.6"4/(Y&*5'4%/5(5&$9("5([Z9"'(@466
:4#-5(;%(4:($%5'5(%:(.#%;&$'4%/(4/$#*"5*\[(%#([Z9"'(@466(.*%.6*(;%(4:('9*4#(@"E*5
4/$#*"5*\[(()&'(4'(45/A'(#*"5%/"86*(4/('#04/E('%("/5@*#(Y&*5'4%/5(5&$9("5([!%@(;%*5("
94E9*#('"B(#"'*("::*$'(.*%.6*A5(5.*/;4/E\[(%#([!%@(;%*5("(56%@;%@/(4/(:%#*4E/
*$%/%-4*5("::*$'(.#%:4'5(4/(U2V2(:4#-5\[
O2
V**(I4E&#*(DJG2((<9*(59".*("/;(.%54'4%/(%:('9*(:#%/'4*#(;*.*/;(%/(9%@($%5'60(4'(45('%
-"4/'"4/("($6*"/(*/=4#%/-*/']'9*(.#%;&$'4=4'0(%:('9*(*/=4#%/-*/'"6(4/;&5'#02((^"4/5(4/
*/=4#%/-*/'"6(.#%;&$'4=4'0>(5&$9("5('9*(;*=*6%.-*/'(%:("(/%J*-4554%/("&'%(*/E4/*>(6*";
'%(594:'5(%:('9*(.#%;&$'4%/J.%5548464'4*5(:#%/'4*#>(647*('9*(594:'(:#%-(LLI ('%((LLI (59%@/
4/('9*(:4E&#*2
Cleanliness of Environment
H2
PPF2
PPF1
Income
!"#$%&#'()#"$*(+(,%-."/0
2-3
Q2
T2
W2
"2
F(:"-460A5(;*$454%/("8%&'(9%@(-&$9(4/$%-*('%(5"=*(45(-4$#%*$%/%-4$52
82
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$2
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;2
F(:4#-A5(;*$454%/("8%&'(9%@(-"/0(@%#7*#5('%(94#*(45(-4$#%*$%/%-4$52
*2
<9*(#*6"'4%/594.(8*'@**/('9*(4/:6"'4%/(#"'*("/;($9"/E*5(4/('9*(Y&"/'4'0(%:(-%/*0
45(-"$#%*$%/%-4$52
"2
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&/*-.6%0-*/'(45("(.%54'4=*(5'"'*-*/'2((C'(;*"65(@4'9(9%@('9*(*$%/%-0(&0>(/%'
9%@(4'(59%&6;(8*2((V4/$*(*$%/%-45'5(9"=*(*B"-4/*;(;"'"("/;(:%&/;('9"'('9*#*A5("
59%#'J#&/(/*E"'4=*(#*6"'4%/594.(8*'@**/(4/:6"'4%/("/;(&/*-.6%0-*/'>('9*
5'"'*-*/'(45("(:"$'>('9&5(4'A5("(.%54'4=*(5'"'*-*/'2
82
<9*(5'"'*-*/'('9"'("(#*;&$'4%/(4/('9*(#"'*(%:(E#%@'9(%:(-%/*0(@466(#*;&$*('9*
#"'*(%:(4/:6"'4%/(45("(.%54'4=*(5'"'*-*/'2((3$%/%-45'5(9"=*(:%&/;('9"'(-%/*0
E#%@'9("/;(4/:6"'4%/("#*(=*#0($6%5*60(#*6"'*;2((<9*(5'"'*-*/'('9&5('*665(9%@('9*
@%#6;(45>("/;(5%(4'(45("(.%54'4=*(5'"'*-*/'2
$2
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-%/*0(45("(/%#-"'4=*(5'"'*-*/'2((C'(5'"'*5("/(%.4/4%/("8%&'(5%-*'94/E('9"'
59%&6;(8*(;%/*>(/%'(9%@('9*(@%#6;(452
;2
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45("(5'"'*-*/'(%:(9%@('9*(@%#6;(59%&6;(8*("/;(45('9&5("(/%#-"'4=*(5'"'*-*/'2
*2
<9*(5'"'*-*/'('9"'(6%@*#('"B(#"'*5(*/$%&#"E*(-%#*(@%#7("/;(-%#*(5"=4/E(45("
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"/;(@%#7>("5(@*66("5('9*(#*6"'4%/594.(8*'@**/('"B(#"'*5("/;(5"=4/E2((<9*0A=*
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8&;E*'(45('%(8*(8"6"/$*;>(4'(59%&6;(8*(;%/*(%=*#('9*(8&54/*55($0$6*(#"'9*#('9"/(0*"#60[
"/;([<9*(E%=*#/-*/'(59%&6;(#*5'#&$'&#*('9*(@*6:"#*(505'*-("6%/E('9*(64/*5(%:("
A/*E"'4=*(4/$%-*('"B2A[(()%'9("#*(5&EE*5'4%/5(%:($9"/E*5('9"'(59%&6;(8*(-";*>(#"'9*#
'9"/(5'"'*-*/'5(%:(:"$'>(5%('9*0("#*($6*"#60(/%#-"'4=*(5'"'*-*/'52
!"#$%&#'()#"$*(+(,%-."/0
2-4
P%5'(%:('9*(%'9*#(5'"'*-*/'5(4/('9*('"86*("#*($6*"#60(.%54'4=*2((<9*0(4/$6&;*R(([F($*464/E
%/(#*/'5(#*;&$*5('9*(Y&"/'4'0("/;(Y&"64'0(%:(9%&54/E("="46"86*>[([<"#4::5("/;(4-.%#'
Y&%'"5(&5&"660(#*;&$*(E*/*#"6(*$%/%-4$(@*6:"#*>[(([I6*B486*("/;(:6%"'4/E(*B$9"/E*
#"'*5(%::*#("/(*::*$'4=*(4/'*#/"'4%/"6(-%/*'"#0("##"/E*-*/'>[([I45$"6(.%64$0(K*2E2>('"B
$&'("/;a%#(*B.*/;4'&#*(4/$#*"5*M(9"5("(54E/4:4$"/'(5'4-&6"'4=*(4-."$'(%/("(6*55('9"/(:&660
*-.6%0*;(*$%/%-0>[(([,"59(."0-*/'5(4/$#*"5*('9*(@*6:"#*(%:(#*$4.4*/'5('%("(E#*"'*#
;*E#**('9"/(;%('#"/5:*#5J4/J74/;(%:(*Y&"6($"59(="6&*>[([F(6"#E*(:*;*#"6(8&;E*'(;*:4$4'
9"5("/(";=*#5*(*::*$'(%/('9*(*$%/%-0>[("/;(([F(-4/4-&-(@"E*(4/$#*"5*5
&/*-.6%0-*/'("-%/E(0%&/E("/;(&/57466*;(@%#7*#52[((F66('9*(5'"'*-*/'5("#*(5'"'*-*/'5
"8%&'(9%@('9*(@%#6;(452((N%'*('9"'(4/("66($"5*5>(*=*/('9%&E9('9*0A#*(5'"'*-*/'5(%:(:"$'>
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@9"'('9*(:"$'5("#*2
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Cars (millions)
$2
20
10
150 200
300
Wheat (millions of bushels)
!"#$%&#'()#"$*(+(,%-."/0
3-5
`2
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'=*(8"'">(6</$*('="'36('=*(6'&8*/'36($%-."#"'<9*("89"/'":*2
]2
"2
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112
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Price of Pizza
D1
D2
Quantity of Pizza
1>2
H#4$*7(.<"0("(54'"<(#%<*(4/(-"#6*'(*$%/%-4*7(:*$"&7*('9*0(:#4/=(-"#6*'7(4/'%
*@&4<4:#4&-2((PA('9*(.#4$*(47(;4AA*#*/'(A#%-(4'7(*@&4<4:#4&-(<*5*<B(@&"/'4'0(7&..<4*;("/;
@&"/'4'0(;*-"/;*;("#*/I'(*@&"<2((?9*(#*7&<'4/=(*C$*77(7&..<0(%#(*C$*77(;*-"/;(<*";7
7&..<4*#7('%(";V&7'('9*(.#4$*(&/'4<(*@&4<4:#4&-(47(#*7'%#*;2((H#4$*7('9&7(7*#5*("7(74=/"<7
'9"'(=&4;*(*$%/%-4$(;*$474%/7("/;("<<%$"'*(7$"#$*(#*7%&#$*72
!"#$%&#'()#"$*(+(,%-."/0
4-2
A'/B5&:1(#78(@$$5<0#%</71*((@71?&'1
"2
,%<;(8*"'9*#(;"-"=*7('9*(%#"/=*($#%.B(#*;&$4/=('9*(7&..<0(%A(%#"/=*72((?947
$"/(:*(7**/(4/(U4=&#*(FE>("7("(794A'('%('9*(<*A'(4/('9*(7&..<0($&#5*(A%#(%#"/=*72(
?9*(/*8(*@&4<4:#4&-(.#4$*(47(94=9*#('9"/('9*(%<;(*@&4<4:#4&-(.#4$*2
S2
S1
Price of Oranges
D
Quantity of Oranges
:2
H*%.<*(%A'*/('#"5*<('%('9*(,"#4::*"/(A#%-(W*8(X/=<"/;('%(*7$".*($%<;(8*"'9*#B
7%(;*-"/;(A%#(,"#4::*"/(9%'*<(#%%-7(47(94=9(4/('9*(84/'*#2((P/('9*(7&--*#B
A*8*#(.*%.<*('#"5*<('%('9*(,"#4::*"/B(74/$*(/%#'9*#/($<4-*7("#*(-%#*(.<*"7"/'2(
?9*(#*7&<'B("7(79%8/(4/(U4=&#*(FEDB(47("(794A'('%('9*(<*A'(4/('9*(;*-"/;($&#5*2(
?9*(*@&4<4:#4&-(.#4$*(%A(,"#4::*"/(9%'*<(#%%-7(47('9&7(<%8*#(4/('9*(7&--*#
'9"/(4/('9*(84/'*#B("7('9*(A4=&#*(79%872
Price of Caribbean Hotel Rooms
12
D1
D2
Quantity of Caribbean Hotel Rooms
!"#$%&#'()#"$*(+(,%-."/0
4-3
S9*/("(8"#(:#*"67(%&'(4/('9*(Y4;;<*(X"7'B(-"/0(-"#6*'7("#*("AA*$'*;2((Q4/$*
-&$9(%4<(.#%;&$'4%/('"6*7(.<"$*('9*#*B('9*(8"#(;47#&.'7(%4<(7&..<4*7B(794A'4/=('9*
7&..<0($&#5*(A%#(="7%<4/*('%('9*(<*A'B("7(79%8/(4/(U4=&#*(FEF2((?9*(#*7&<'(47("
#47*(4/('9*(*@&4<4:#4&-(.#4$*(%A(="7%<4/*2((S4'9("(94=9*#(.#4$*(A%#(="7%<4/*B('9*
$%7'(%A(%.*#"'4/=("(="7E=&TT<4/=("&'%-%:4<*B(<46*("(,";4<<"$B(84<<(4/$#*"7*2((37("
#*7&<'B('9*(;*-"/;(A%#(&7*;(,";4<<"$7(84<<(;*$<4/*B("7(.*%.<*(4/('9*(-"#6*'(A%#
$"#7(8%/I'(A4/;(,";4<<"$7("7("''#"$'45*2((P/(";;4'4%/B(7%-*(.*%.<*(89%("<#*";0
%8/(,";4<<"$7(84<<('#0('%(7*<<('9*-2((?9*(#*7&<'(47('9"'('9*(;*-"/;($&#5*(A%#(&7*;
,";4<<"$7(794A'7('%('9*(<*A'B(894<*('9*(7&..<0($&#5*(794A'7('%('9*(#4=9'B("7(79%8/(4/
U4=&#*(FEJ2((?9*(#*7&<'(47("(;*$<4/*(4/('9*(*@&4<4:#4&-(.#4$*(%A(&7*;(,";4<<"$72
Price of Gasoline
S2
S1
Quantity of Gasoline
Price of Used Cadillacs
$2
S1
S2
D1
D2
Quantity of Used Cadillacs
!"#$%&#'()#"$*(+(,%-."/0
4-4
?9*(7'"'*-*/'('9"'(Z"/(4/$#*"7*(4/('9*(;*-"/;(A%#(/%'*:%%67(#"47*7('9*(@&"/'4'0(%A
/%'*:%%67(;*-"/;*;B(:&'(/%'('9*(@&"/'4'0(7&..<4*;Z(47(A"<7*B(4/(=*/*#"<2((37(U4=&#*(FEK
79%87B('9*(4/$#*"7*(4/(;*-"/;(A%#(/%'*:%%67(#*7&<'7(4/("/(4/$#*"7*;(@&"/'4'0(7&..<4*;2(
?9*(%/<0(8"0('9*(7'"'*-*/'(8%&<;(:*('#&*(47(4A('9*(7&..<0($&#5*(8*#*(.*#A*$'<0
4/*<"7'4$B("7(79%8/(4/(U4=&#*(FEL2
Price of Notebooks
D2
D1
Quantity of Notebooks
Price of Notebooks
>2
D2
D1
Quantity of Notebooks
!"#$%&#'()#"$*(+(,%-."/0
4-5
F2
"2
PA(.*%.<*(;*$4;*('%(9"5*(-%#*($94<;#*/(["($9"/=*(4/('"7'*7\B('9*0I<<(8"/'(<"#=*#
5*94$<*7(A%#(9"&<4/=('9*4#(64;7("#%&/;B(7%('9*(;*-"/;(A%#(-4/45"/7(84<<(4/$#*"7*2(
Q&..<0(8%/I'(:*("AA*$'*;2
:2
PA("(7'#46*(:0(7'**<8%#6*#7(#"47*7(7'**<(.#4$*7B('9*($%7'7(%A(.#%;&$4/=("(-4/45"/
#47*(["(#47*(4/(4/.&'(.#4$*7\2((?9*(#*7&<'(47("(;*$#*"7*(4/('9*(7&..<0(%A(-4/45"/72(
]*-"/;(8%/I'(:*("AA*$'*;2
$2
?9*(;*5*<%.-*/'(%A(/*8("&'%-"'*;(-"$94/*#0(A%#('9*(.#%;&$'4%/(%A(-4/45"/7(47
"/(4-.#%5*-*/'(4/('*$9/%<%=02((?9*(#*;&$'4%/(4/(A4#-7I($%7'7(#*7&<'7(4/("/
4/$#*"7*(4/(7&..<02((]*-"/;(47/I'("AA*$'*;2
;2
?9*(#47*(4/('9*(.#4$*(%A(7'"'4%/(8"=%/7("AA*$'7(-4/45"/(;*-"/;(:*$"&7*(7'"'4%/
8"=%/7("#*(7&:7'4'&'*7(A%#(-4/45"/7(['9"'(47B('9*#*I7("(#47*(4/('9*(.#4$*(%A("
#*<"'*;(=%%;\2((?9*(#*7&<'(47("/(4/$#*"7*(4/(;*-"/;(A%#(-4/45"/72((Q&..<0(47/I'
"AA*$'*;2((
*2
?9*(#*;&$'4%/(4/(.*%.<*7I(8*"<'9($"&7*;(:0("(7'%$6E-"#6*'($#"79(#*;&$*7('9*4#
4/$%-*B(<*";4/=('%("(#*;&$'4%/(4/('9*(;*-"/;(A%#(-4/45"/7B(74/$*(-4/45"/7("#*("
/%#-"<(=%%;2
"2
S9*/("(9&##4$"/*(4/(Q%&'9(,"#%<4/"(;"-"=*7('9*($%''%/($#%.B(4'(#"47*7(4/.&'
.#4$*7(A%#(.#%;&$4/=(78*"'794#'72((37("(#*7&<'B('9*(7&..<0(%A(78*"'794#'7(794A'7('%
'9*(<*A'B("7(79%8/(4/(U4=&#*(FEM2((?9*(/*8(*@&4<4:#4&-(9"7("(94=9*#(.#4$*("/;
<%8*#(@&"/'4'0(%A(78*"'794#'72
S2
Price of Sweatshirts
D2
S1
D
Quantity of Sweatshirts
!"#$%&#'()#"$*(+(,%-."/0
4-6
:2
3(;*$<4/*(4/('9*(.#4$*(%A(<*"'9*#(V"$6*'7(<*";7(-%#*(.*%.<*('%(:&0(<*"'9*#(V"$6*'7B
#*;&$4/=('9*(;*-"/;(A%#(78*"'794#'72((?9*(#*7&<'B(79%8/(4/(U4=&#*(FENB(47("
;*$<4/*(4/(:%'9('9*(*@&4<4:#4&-(.#4$*("/;(@&"/'4'0(%A(78*"'794#'72
D2
D1
?9*(*AA*$'7(%A($%<<*=*7(#*@&4#4/=(7'&;*/'7('%(*/="=*(4/(-%#/4/=($"<47'9*/4$7(4/
"..#%.#4"'*("''4#*(#"47*7('9*(;*-"/;(A%#(78*"'794#'7B("7(79%8/(4/(U4=&#*(FE1O2(
?9*(#*7&<'(47("/(4/$#*"7*(4/(:%'9('9*(*@&4<4:#4&-(.#4$*("/;(@&"/'4'0(%A
78*"'794#'72
S
$2
D1
D2
!"#$%&#'()#"$*(+(,%-."/0
4-7
;2
?9*(4/5*/'4%/(%A(/*8(6/4''4/=(-"$94/*7(4/$#*"7*7('9*(7&..<0(%A(78*"'794#'72((37
U4=&#*(FE11(79%87B('9*(#*7&<'(47("(#*;&$'4%/(4/('9*(*@&4<4:#4&-(.#4$*("/;("/
4/$#*"7*(4/('9*(*@&4<4:#4&-(@&"/'4'0(%A(78*"'794#'72
S1
S2
3('*-.%#"#4<0(94=9(:4#'9(#"'*(4/('9*(0*"#(>OOO(<*";7('%(%..%74'*(*AA*$'7(%/('9*(.#4$*(%A
:":074''4/=(7*#54$*7(4/('9*(0*"#7(>OOJ("/;(>O1J2((P/('9*(0*"#(>OOJB('9*#*("#*(-%#*(JE
0*"#(%<;7(89%(/**;(74''*#7B(7%('9*(;*-"/;(A%#(:":074''4/=(7*#54$*7(#47*7B("7(79%8/(4/
U4=&#*(FE1>2((?9*(#*7&<'(47("(94=9*#(.#4$*(A%#(:":074''4/=(7*#54$*7(4/(>OOJ2((!%8*5*#B(4/
'9*(0*"#(>O1JB('9*(4/$#*"7*;(/&-:*#(%A(1JE0*"#(%<;7(794A'7('9*(7&..<0(%A(:":074''4/=
7*#54$*7('%('9*(#4=9'B("7(79%8/(4/(U4=&#*(FE1D2((?9*(#*7&<'B("7(79%8/(4/(U4=&#*(FE1DB(47
"(;*$<4/*(4/('9*(.#4$*(%A(:":074''4/=(7*#54$*72
S
Price of Babysitting Services
J2
D1
D2
Quantity of Babysitting Services
!"#$%&#'()#"$*(+(,%-."/0
4-8
Price of Babysitting Services
S1
S2
D
Quantity of Babysitting Services
"2
,4="#7("/;($9*84/=('%:"$$%("#*(7&:7'4'&'*7(A%#($4="#*''*7B(74/$*("(94=9*#(.#4$*
A%#($4="#*''*7(8%&<;(4/$#*"7*(;*-"/;(A%#($4="#7("/;($9*84/=('%:"$$%2
:2
3/(4/$#*"7*(4/('9*('"C(%/($4="#*''*7(<*";7('%(4/$#*"7*;(;*-"/;(A%#($4="#7("/;
$9*84/=('%:"$$%2((?9*(#*7&<'B("7(79%8/(4/(U4=&#*(FE1F(A%#($4="#7B(47("(#47*(4/
:%'9('9*(*@&4<4:#4&-(.#4$*("/;(@&"/'4'0(%A($4="#7("/;($9*84/=('%:"$$%2
S
Price of Cigars
K2
D1
D2
Quantity of Cigars
!"#$%&#'()#"$*(+(,%-."/0
4-9
$2
L2
?9*(#*7&<'7(4/(."#'([:\(79%8*;('9"'("('"C(%/($4="#*''*7(<*";7(.*%.<*('%(7&:7'4'&'*
$4="#7("/;($9*84/=('%:"$$%(A%#($4="#*''*7(89*/('9*('"C(%/($4="#*''*7(#47*72((?%
#*;&$*('%'"<('%:"$$%(&7"=*B(.%<4$0-"6*#7(-4=9'("<7%(8"/'('%(4/$#*"7*('9*('"C(%/
$4="#7("/;($9*84/=('%:"$$%B(%#(.&#7&*(7%-*('0.*(%A(.&:<4$(*;&$"'4%/(.#%=#"-2
^&"/'4'0(7&..<4*;(*@&"<7(@&"/'4'0(;*-"/;*;("'("(.#4$*(%A(_K("/;(@&"/'4'0(%A(M1(.4TT"7
[U4=&#*(FE1J\2((PA(.#4$*(8*#*(=#*"'*#('9"/(_KB(@&"/'4'0(7&..<4*;(8%&<;(*C$**;(@&"/'4'0
;*-"/;*;B(7%(7&..<4*#7(8%&<;(#*;&$*('9*4#(.#4$*('%(="4/(7"<*72((PA(.#4$*(8*#*(<*77('9"/
_KB(@&"/'4'0(;*-"/;*;(8%&<;(*C$**;(@&"/'4'0(7&..<4*;B(7%(7&..<4*#7($%&<;(#"47*('9*4#
.#4$*(84'9%&'(<%74/=(7"<*72((P/(:%'9($"7*7B('9*(.#4$*(8%&<;($%/'4/&*('%(";V&7'(&/'4<(4'
#*"$9*;(_KB('9*(%/<0(.#4$*("'(894$9('9*#*I7(/*4'9*#(*C$*77(7&..<0(/%#(*C$*77(;*-"/;2
Price of Pizza
D1
D2
Quantity of Pizza
M2
"2
3('*$9/%<%=4$"<(:#*"6'9#%&=9('9"'(#*;&$*7('9*($%7'(%A(.#%;&$4/=($%-.&'*#($94.7
#*.#*7*/'7("(;*$<4/*(4/("/(4/.&'(.#4$*(A%#(.#%;&$4/=("($%-.&'*#2((?9*(#*7&<'(47("
794A'('%('9*(#4=9'(4/('9*(7&..<0(%A($%-.&'*#7B("7(79%8/(4/(U4=&#*(FE1K2((?9*
*@&4<4:#4&-(.#4$*(A"<<7("/;('9*(*@&4<4:#4&-(@&"/'4'0(#47*7B("7('9*(A4=&#*(79%872
!"#$%&#'()#"$*(+(,%-."/0
4-10
S1
Price of Computers
S2
D
Quantity of Computers
Q4/$*($%-.&'*#(7%A'8"#*(47("($%-.<*-*/'('%($%-.&'*#7B('9*(4/$#*"7*;
*@&4<4:#4&-(@&"/'4'0(%A($%-.&'*#7(4/$#*"7*7('9*(;*-"/;(A%#(7%A'8"#*2((37
U4=&#*(FE1L(79%87B('9*(#*7&<'(47("(#47*(4/(:%'9('9*(*@&4<4:#4&-(.#4$*("/;(@&"/'4'0
%A(7%A'8"#*2
Price of Software
:2
D2
D1
Quantity of Software
!"#$%&#'()#"$*(+(,%-."/0
4-11
PA('9*(.#4$*(%A(A<%&#(A"<<7B(74/$*(A<%&#(47("/(4/=#*;4*/'(4/(:"=*<7B('9*(7&..<0($&#5*
A%#(:"=*<7(8%&<;(794A'('%('9*(#4=9'2((?9*(#*7&<'B(79%8/(4/(U4=&#*(FE1MB(8%&<;(:*
"(A"<<(4/('9*(.#4$*(%A(:"=*<7("/;("(#47*(4/('9*(*@&4<4:#4&-(@&"/'4'0(%A(:"=*<72
S1
S2
Price of Bagels
"2
D
Quantity of Bagels
Q4/$*($#*"-($9**7*(47("($%-.<*-*/'('%(:"=*<7B('9*(#47*(4/(@&"/'4'0(;*-"/;*;(%A
:"=*<7(4/$#*"7*7('9*(;*-"/;(A%#($#*"-($9**7*B("7(79%8/(4/(U4=&#*(FE1N2((?9*
#*7&<'(47("(#47*(4/(:%'9('9*(*@&4<4:#4&-(.#4$*("/;(@&"/'4'0(%A($#*"-($9**7*2((Q%B("
A"<<(4/('9*(.#4$*(%A(A<%&#(4/;**;(#"47*7(:%'9('9*(*@&4<4:#4&-(.#4$*(%A($#*"-($9**7*
"/;('9*(*@&4<4:#4&-(@&"/'4'0(%A(:"=*<72
S
Price of Cream Cheese
N2
D2
D1
Quantity of Cream Cheese
!"#$%&#'()#"$*(+(,%-."/0
4-12
S9"'(9"..*/7(4A('9*(.#4$*(%A(-4<6(A"<<7`((Q4/$*(-4<6(47("/(4/=#*;4*/'(4/($#*"$9**7*B('9*(A"<<(4/('9*(.#4$*(%A(-4<6(<*";7('%("/(4/$#*"7*(4/('9*(7&..<0(%A($#*"$9**7*2((?947(<*";7('%("(;*$#*"7*(4/('9*(.#4$*(%A($#*"-($9**7*([U4=&#*(FE>O\B
#"'9*#('9"/("(#47*(4/('9*(.#4$*(%A($#*"-($9**7*2((Q%("(A"<<(4/('9*(.#4$*(%A(-4<6
$%&<;/I'(9"5*(:**/(#*7.%/74:<*(A%#('9*(."''*#/(%:7*#5*;2
S2
Price of Cream Cheese
S1
D
Quantity of Cream Cheese
:2
P/(."#'(["\B(8*(A%&/;('9"'("(A"<<(4/('9*(.#4$*(%A(A<%&#(<*;('%("(#47*(4/('9*(.#4$*(%A
$#*"-($9**7*("/;("(#47*(4/('9*(*@&4<4:#4&-(@&"/'4'0(%A(:"=*<72((PA('9*(.#4$*(%A
A<%&#(#%7*B('9*(%..%74'*(8%&<;(:*('#&*G"(A"<<(4/('9*(.#4$*(%A($#*"-($9**7*("/;("
A"<<(4/('9*(*@&4<4:#4&-(@&"/'4'0(%A(:"=*<72((Q4/$*('9*(@&*7'4%/(7"07('9*
*@&4<4:#4&-(.#4$*(%A($#*"-($9**7*(9"7(#47*/B(4'($%&<;/I'(9"5*(:**/($"&7*;(:0("
#47*(4/('9*(.#4$*(%A(A<%&#2
S9"'(9"..*/7(4A('9*(.#4$*(%A(-4<6(#47*7`((U#%-(."#'(["\B(8*(A%&/;('9"'("(A"<<(4/
'9*(.#4$*(%A(-4<6($"&7*;("(;*$<4/*(4/('9*(.#4$*(%A($#*"-($9**7*B(7%("(#47*(4/('9*
.#4$*(%A(-4<6(8%&<;($"&7*("(#47*(4/('9*(.#4$*(%A($#*"-($9**7*2((Q4/$*(:"=*<7("/;
$#*"-($9**7*("#*($%-.<*-*/'7B('9*(#47*(4/('9*(.#4$*(%A($#*"-($9**7*(8%&<;
#*;&$*('9*(;*-"/;(A%#(:"=*<7B("7(U4=&#*(FE>1(79%872((?9*(#*7&<'(47("(;*$<4/*(4/
'9*(*@&4<4:#4&-(@&"/'4'0(%A(:"=*<72((Q%("(#47*(4/('9*(.#4$*(%A(-4<6(;%*7($"&7*
:%'9("(#47*(4/('9*(.#4$*(%A($#*"-($9**7*("/;("(;*$<4/*(4/('9*(*@&4<4:#4&-(@&"/'4'0
%A(:"=*<72
!"#$%&#'()#"$*(+(,%-."/0
4-13
Price of Bagels
D2
D1
Quantity of Bagels
"2
37(U4=&#*(FE>>(79%87B('9*(7&..<0($&#5*(47(5*#'4$"<2((?9*($%/7'"/'(7&..<0(-"6*7
7*/7*(:*$"&7*('9*(:"76*':"<<("#*/"(9"7("(A4C*;(/&-:*#(%A(7*"'7(/%(-"''*#(89"'
'9*(.#4$*2
S
Price of Basketball Tickets
1O2
$8
D
8,000
Quantity of Basketball Tickets
!"#$%&#'()#"$*(+(,%-."/0
4-14
:2
^&"/'4'0(7&..<4*;(*@&"<7(@&"/'4'0(;*-"/;*;("'("(.#4$*(%A(_M2((?9*(*@&4<4:#4&@&"/'4'0(47(MBOOO('4$6*'72
$2
.#4$*
(((F
(((M
((1>
((1K
((>O
((@&"/'4'0(;*-"/;*;
1FBOOO
11BOOO
(MBOOO
(JBOOO
(>BOOO
(((@&"/'4'0(7&..<4*;
MBOOO
MBOOO
MBOOO
MBOOO
MBOOO
?9*(/*8(*@&4<4:#4&-(.#4$*(84<<(:*(_1>B(894$9(*@&"'*7(@&"/'4'0(;*-"/;*;('%
@&"/'4'0(7&..<4*;2((?9*(*@&4<4:#4&-(@&"/'4'0(47(MBOOO('4$6*'72
?9*(*C*$&'45*7("#*($%/A&74/=($9"/=*7(4/(;*-"/;(84'9($9"/=*7(4/(@&"/'4'0(;*-"/;*;2(
U4=&#*(FE>D(79%87('9*(;*-"/;($&#5*(.#4%#('%('9*(-"#6*'4/=($"-."4=/([] \B("/;("A'*#
'9*($"-."4=/([] \2((?9*(-"#6*'4/=($"-."4=/(4/$#*"7*;('9*(;*-"/;(A%#($9"-."=/*B("7
79%8/B(<*";4/=('%("(94=9*#(*@&4<4:#4&-(.#4$*("/;(@&"/'4'02((?9*(4/A<&*/$*(%A('9*(94=9*#
.#4$*(%/(;*-"/;(47("<#*";0(#*A<*$'*;(4/('9*(%&'$%-*2((P'I7(4-.%774:<*(A%#('9*(7$*/"#4%
%&'<4/*;(:0('9*(*C*$&'45*7('%(%$$&#2
S
Price of Champagne
112
D1
D2
Quantity of Champagne
!"#$%&#'()#"$*(+(,%-."/0
4-15
1>2
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Price
Area of rectangle
= total spending
by consumers
= total revenue received
by producers
=PxQ
Q
Quantity
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5-1
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%/(<"7?(/%(-"''*#(:4"'('4*(.#5$*?(:45$4(-*"/7(457(.*#$*/'"<*($4"/<*(5/(;&"/'5'0(57
*;&"6('%('4*(.*#$*/'"<*($4"/<*(5/(.#5$*2
P2
3%(*>.6"5/('4*(8"$'('4"'(7.*/95/<(%/(#*7'"&#"/'(-*"67(9*$65/*7(-%#*(9&#5/<(*$%/%-5$
9%:/'&#/7('4"/(9%*7(7.*/95/<(%/(8%%9('%(A*(*"'*/("'(4%-*?(*$%/%-57'7(6%%B("'('4*
5/$%-*(*6"7'5$5'0(%8(9*-"/92((M/(*$%/%-5$(9%:/'&#/7?(.*%.6*(4"@*(6%:*#(5/$%-*2((3%
*>.6"5/('4*(8"$'?("66(0%&H9(/**9('%(*>.6"5/(5'(57('4"'('4*(5/$%-*(*6"7'5$5'0(%8(#*7'"&#"/'
-*"67(A*(6"#<*#('4"/('4*(5/$%-*(*6"7'5$5'0(%8(7.*/95/<(%/(8%%9('%(A*(*"'*/("'(4%-*2
Q2
"2
G5'4("(.#5$*(*6"7'5$5'0(%8(9*-"/9(%8(U2I?(#*9&$5/<('4*(;&"/'5'0(9*-"/9*9(%8
$5<"#*''*7(A0(=U(.*#$*/'(#*;&5#*7("(KU(.*#$*/'(5/$#*"7*(5/(.#5$*?(75/$*(=U_KU(a
U2I2((G5'4('4*(.#5$*(%8($5<"#*''*7($&##*/'60(]=?('457(:%&69(#*;&5#*("/(5/$#*"7*(5/
'4*(.#5$*('%(]E("(."$B(W%#(]E(1_E(&75/<('4*(-59.%5/'(-*'4%9Y2
A2
34*(.%65$0(:566(4"@*("(6"#<*#(*88*$'(85@*(0*"#7(8#%-(/%:('4"/(5'(9%*7(%/*(0*"#
8#%-(/%:2((34*(*6"7'5$5'0(57(65B*60('%(A*(6"#<*#(5/('4*(6%/<(#&/?(75/$*(5'(-"0('"B*
7%-*('5-*(8%#(.*%.6*('%(#*9&$*('4*5#($5<"#*''*(&7"<*2((34*(4"A5'(%8(7-%B5/<(57
65B*60('%(A*(4"#9('%(A#*"B(5/('4*(74%#'(#&/2
$2
\5/$*('**/"<*#7(9%/H'(4"@*("7(-&$4(5/$%-*("7("9&6'7?('4*0("#*(65B*60('%(4"@*("
45<4*#(.#5$*(*6"7'5$5'0(%8(9*-"/92((N67%?("9&6'7("#*(-%#*(65B*60('%(A*("995$'*9('%
$5<"#*''*7?(-"B5/<(5'(-%#*(95885$&6'('%(#*9&$*('4*5#(;&"/'5'0(9*-"/9*9(5/
#*7.%/7*('%("(45<4*#(.#5$*2
S2
b%&H9(*>.*$'('4*(.#5$*(*6"7'5$5'0(%8(7&..60('%(A*(6"#<*#(8%#(@"/566"(5$*($#*"-('4"/(8%#("66
5$*($#*"-2((N(.#%9&$*#(%8(@"/566"(5$*($#*"-($%&69(*"7560("9f&7'('4*(;&"/'5'0(%8(@"/566"
5$*($#*"-("/9(.#%9&$*(%'4*#('0.*7(%8(5$*($#*"-2(()&'("(.#%9&$*#(%8(5$*($#*"-(:%&69
4"@*("(-%#*(95885$&6'('5-*("9f&7'5/<('4*(%@*#"66(;&"/'5'0(%8(5$*($#*"-2
1U2
"2
J"#-*#7(:4%7*($#%.7(:*#*/H'(9*7'#%0*9(A*/*85''*9(A*$"&7*('4*(9*7'#&$'5%/(%8
7%-*(%8('4*($#%.7(#*9&$*9('4*(7&..60?($"&75/<('4*(*;&565A#5&-(.#5$*('%(#57*2
A2
3%('*66(:4*'4*#(8"#-*#7("7("(<#%&.(:*#*(4&#'(%#(4*6.*9(A0('4*(86%%97?(0%&H9
/**9('%(B/%:('4*(.#5$*(*6"7'5$5'0(%8(9*-"/92((M'($%&69(A*('4"'('4*("995'5%/"6
5/$%-*(*"#/*9(A0(8"#-*#7(:4%7*($#%.7(:*#*/H'(9*7'#%0*9(#%7*(-%#*(A*$"&7*(%8
'4*(45<4*#(.#5$*7('4"/(8"#-*#7(:4%7*($#%.7(:*#*(9*7'#%0*9?(58(9*-"/9(57
5/*6"7'5$2
112
N(:%#69:59*(9#%&<4'($%&69(5/$#*"7*('4*('%'"6(#*@*/&*(%8(8"#-*#7(58('4*(.#5$*(*6"7'5$5'0
%8(9*-"/9(8%#(<#"5/(57(5/*6"7'5$2((34*(9#%&<4'(#*9&$*7('4*(7&..60(%8(<#"5/?(A&'(58
!"#$%&#'()#"$*(+(,%-."/0
5-5
9*-"/9(57(5/*6"7'5$?('4*(#*9&$'5%/(%8(7&..60($"&7*7("(6"#<*(5/$#*"7*(5/(.#5$*2((3%'"6(8"##*@*/&*(:%&69(#57*("7("(#*7&6'2((M8('4*#*H7(%/60("(9#%&<4'(5/(g"/7"7?(g"/7"7H7
.#%9&$'5%/(57/H'("(6"#<*(*/%&<4(.#%.%#'5%/(%8('4*('%'"6(8"#-(.#%9&$'('%(4"@*(-&$4
5-."$'(%/('4*(.#5$*2((N7("(#*7&6'?(.#5$*(57("A%&'(&/$4"/<*9?(:456*('4*(%&'.&'(%8(g"/7"7
8"#-*#7(9*$65/*7?('4&7(#*9&$5/<('4*5#(5/$%-*2
1=2
G4*/(.#%9&$'5@5'0(5/$#*"7*7(8%#("66(8"#-6"/9("'("(.%5/'(5/('5-*?('4*(5/$#*"7*9
.#%9&$'5@5'0(6*"97('%("(#57*(5/(8"#-6"/9(.#5$*7?(75/$*(-%#*(%&'.&'($"/(A*(.#%9&$*9(%/("
<5@*/("-%&/'(%8(6"/92(()&'(.#5%#('%('4*('*$4/%6%<5$"6(5-.#%@*-*/'7?('4*(.#%9&$'5@5'0(%8
8"#-6"/9(9*.*/9*9(-"5/60(%/('4*(.#*@"565/<(:*"'4*#($%/95'5%/72((34*#*(:"7(65''6*
%..%#'&/5'0('%(7&A7'5'&'*(6"/9(:5'4(:%#7*(:*"'4*#($%/95'5%/7(8%#(6"/9(:5'4(A*''*#
:*"'4*#($%/95'5%/72((N7('*$4/%6%<0(5-.#%@*9(%@*#('5-*?(5'(A*$"-*(-&$4(*"75*#('%
7&A7'5'&'*(9588*#*/'('0.*7(%8(6"/92((\%('4*(.#5$*(*6"7'5$5'0(%8(9*-"/9(8%#(6"/9(5/$#*"7*9
%@*#('5-*2((N7("(#*7&6'?(.#%9&$'5@5'0("/9(8"#-6"/9(.#5$*7("#*(/*<"'5@*60(#*6"'*9(%@*#
'5-*2
1E2
34*(#57*(5/('4*('">(#"'*(:%&69/H'(/*$*77"#560(5/$#*"7*('">(#*@*/&*?(75/$*(58('4*(9*-"/9
8%#($"#7(:*#*(*6"7'5$?('4*(#57*(5/('4*(.#5$*(%8($"#7($%&69(A*(*/%&<4('%(#*9&$*('%'"6
7.*/95/<(%/('4*($"#72((N7("(#*7&6'?('%'"6('">(#*@*/&*(-5<4'(4"@*(9*$65/*9?(5/7'*"9(%8
5/$#*"75/<2
!"#$%&#'()#"$*(+(,%-."/0
5-6
!"#$%&'()*(+,$$-./(0&1#23/(#23(456&'21&2%(75-898&:
;,&:%852:(<5'(=&68&>*((?2:>&':
12
3/(*4"-.5*(%6("(.#7$*($*757/8(79(':*(#*/'($%/'#%5(909'*-(7/(;*<(=%#>(,7'02((3/
*4"-.5*(%6("(.#7$*(65%%#(79(':*(-7/7-&-(<"8*2((?"/0(%':*#(*4"-.5*9("#*(.%997@5*2
A2
3(9:%#'"8*(%6("(8%%B("#79*9(<:*/(':*#*(79("(@7/B7/8(.#7$*($*757/82((3(9&#.5&9(%6("(8%%B
"#79*9(<:*/(':*#*(79("(@7/B7/8(.#7$*(65%%#2
C2
D$%/%-79'9(&9&"550(%..%9*($%/'#%59(%/(.#7$*9(@*$"&9*(.#7$*9(:"E*(':*($#&$7"5(F%@(%6
$%%#B7/"'7/8(*$%/%-7$("$'7E7'0(@0(@"5"/$7/8(B*-"/B("/B(9&..502((G:*/(.%57$0-">*#9
9*'($%/'#%59(%/(.#7$*9H(':*0(%@9$&#*(':*(978/"59(':"'(8&7B*(':*("55%$"'7%/(%6(9%$7*'0I9
#*9%&#$*92((J&#':*#H(.#7$*($%/'#%59(%6'*/(:&#'(':%9*(':*0("#*('#07/8('%(:*5.2
K2
3('"4(."7B(@0(@&0*#9(9:76'9(':*(B*-"/B($&#E*H(<:75*("('"4(."7B(@0(9*55*#9(9:76'9(':*
9&..50($&#E*2((!%<*E*#H(':*(%&'$%-*(79(':*(9"-*(#*8"#B5*99(%6(<:%(."09(':*('"42
L2
3('"4(%/("(8%%B(#"79*9(':*(.#7$*(@&0*#9(."0H(5%<*#9(':*(.#7$*(9*55*#9(#*$*7E*H("/B
#*B&$*9(':*(M&"/'7'0(9%5B2
N2
O:*(@&#B*/(%6("('"4(79(B7E7B*B(@*'<**/(@&0*#9("/B(9*55*#9(B*.*/B7/8(%/(':*(*5"9'7$7'0(%6
B*-"/B("/B(9&..502((D5"9'7$7'0(#*.#*9*/'9(':*(<7557/8/*99(%6(@&0*#9(%#(9*55*#9('%(5*"E*
':*(-"#>*'H(<:7$:(7/('&#/9(B*.*/B9(%/(':*7#("5'*#/"'7E*92((G:*/("(8%%B(79('"4*BH(':*
97B*(%6(':*(-"#>*'(<7':(6*<*#(8%%B("5'*#/"'7E*9($"//%'(*"9750(5*"E*(':*(-"#>*'("/B(':&9
@*"#9(-%#*(%6(':*(@&#B*/(%6(':*('"42
7'5@-&1:(#23(?$$-89#%852:*((?2:>&':
12
"2
J78&#*(NP1(9:%<9(':*(-"#>*'(6%#(@**#(<7':%&'(':*('"42((O:*(*M&757@#7&-(.#7$*(79
Q ("/B(':*(*M&757@#7&-(M&"/'7'0(79(R 2((O:*(.#7$*(."7B(@0($%/9&-*#9(79(':*(9"-*
"9(':*(.#7$*(#*$*7E*B(@0(.#%B&$*#92
!"#$%&#'()#"$*(+(,%-."/0
6-1
Price of Beer
Supply
P1
Demand
Q1
Quantity of Beer
G:*/(':*('"4(79(7-.%9*BH(7'(B#7E*9("(<*B8*(%6(SA(@*'<**/(9&..50("/B(B*-"/BH
"9(9:%</(7/(J78&#*(NPA2((O:*(.#7$*(."7B(@0($%/9&-*#9(79(Q H(<:75*(':*(.#7$*
#*$*7E*B(@0(.#%B&$*#9(79(Q (P(SA2((O:*(M&"/'7'0(%6(@**#(9%5B(B*$57/*9('%(R 2
Price of Beer
@2
Supply
P2
P1
P2 $2
Demand
Q2 Q1
Quantity of Beer
A2
"2
O:*(7-.%97'7%/(%6("(@7/B7/8(.#7$*(65%%#(7/(':*($:**9*(-"#>*'(79(9:%</(7/(J78&#*(
NPC2((T/(':*("@9*/$*(%6(':*(.#7$*(65%%#H(':*(.#7$*(<%&5B(@*(Q ("/B(':*(M&"/'7'0(
<%&5B(@*(R 2((G7':(':*(65%%#(9*'("'(Q H(<:7$:(79(8#*"'*#(':"/(Q H(':*(M&"/'7'0(
B*-"/B*B(79(R H(<:75*(M&"/'7'0(9&..57*B(79(R H(9%(':*#*(79("(9&#.5&9(%6($:**9*(7/(
':*("-%&/'(R (P(R 2
!"#$%&#'()#"$*(+(,%-."/0
6-2
Price of Cheese
Supply
Pf
P1
Demand
Q2 Q1
Q3
Quantity of Cheese
@2
O:*(6"#-*#9I($%-.5"7/'(':"'(':*7#('%'"5(#*E*/&*(:"9(B*$57/*B(79($%##*$'(76(B*-"/B
79(*5"9'7$2((G7':(*5"9'7$(B*-"/BH(':*(.*#$*/'"8*(B*$57/*(7/(M&"/'7'0(<%&5B(*4$**B
':*(.*#$*/'"8*(#79*(7/(.#7$*H(9%('%'"5(#*E*/&*(<%&5B(B*$57/*2
$2
T6(':*(8%E*#/-*/'(.&#$:"9*9("55(':*(9&#.5&9($:**9*("'(':*(.#7$*(65%%#H(.#%B&$*#9
@*/*67'("/B('"4."0*#9(5%9*2((Q#%B&$*#9($%&5B(':*/(.#%B&$*("(M&"/'7'0(R (%6
$:**9*H(8"7/7/8(9&@9'"/'7"5(.#%B&$*#(9&#.5&92(()&'($%/9&-*#9(<%&5B(@&0(%/50
':*(M&"/'7'0(R (%6($:**9*H(9%(':*0("#*(7/(':*(9"-*(.%97'7%/("9(@*6%#*2((O"4."0*#9
5%9*(@*$"&9*(':*0(<%&5B(@*(67/"/$7/8(':*(.&#$:"9*(%6(':*(9&#.5&9($:**9*2(
U%$7*'0("9("(<:%5*(5%9*9(7/(':*(9*/9*(':"'('%'"5(9&#.5&9(7/(':*($:**9*(-"#>*'(79/I'
@*7/8(-"47-7V*B2
C2
T6(':*(8%E*#/-*/'(7-.%9*9("(SLWW('"4(%/(5&4&#0($"#9H(':*(.#7$*(."7B(@0($%/9&-*#9(<755
#79*(5*99(':"/(SLWWH(7/(8*/*#"52((O:*(@&#B*/(%6("/0('"4(79(9:"#*B(@0(@%':(.#%B&$*#9("/B
$%/9&-*#9PP':*(.#7$*(."7B(@0($%/9&-*#9(#79*9("/B(':*(.#7$*(#*$*7E*B(@0(.#%B&$*#9(6"559H
<7':(':*(B766*#*/$*(@*'<**/(':*('<%(*M&"5('%(':*("-%&/'(%6(':*('"42((O:*(%/50(*4$*.'7%/
<%&5B(@*(76(':*(9&..50($&#E*(<*#*(.*#6*$'50(*5"9'7$H(7/(<:7$:($"9*($%/9&-*#9(<%&5B
@*"#(':*(6&55(@&#B*/(%6(':*('"4("/B(':*(.#7$*(."7B(@0($%/9&-*#9(<%&5B(#79*(@0(*4"$'50
SLWW2
K2
"2
O:*(*M&757@#7&-(.#7$*(%6(6#79@**9(79(SX("/B(':*(*M&757@#7&-(M&"/'7'0(79(N(-7557%/
6#79@**92
@2
G7':("(.#7$*(65%%#(%6(S1WH(':*(/*<(-"#>*'(.#7$*(79(S1W(97/$*(':*(.#7$*(65%%#(79
@7/B7/82((3'(':"'(.#7$*H(%/50(A(-7557%/(6#79@**9("#*(9%5BH(97/$*(':"'I9(':*(M&"/'7'0
B*-"/B*B2
!"#$%&#'()#"$*(+(,%-."/0
6-3
T6(':*#*I9("(.#7$*($*757/8(%6(SYH(7'(:"9(/%(*66*$'H(97/$*(':*(-"#>*'(*M&757@#7&.#7$*(79(SXH(@*5%<(':*($*757/82((U%(':*(*M&757@#7&-(.#7$*(79(SX("/B(':*
*M&757@#7&-(M&"/'7'0(79(N(-7557%/(6#79@**92
"2
T'(B%*9/I'(-"''*#(<:*':*#(':*('"4(79(7-.%9*B(%/(.#%B&$*#9(%#($%/9&-*#9PP':*
*66*$'(<755(@*(':*(9"-*2((G7':(/%('"4H("9(9:%</(7/(J78&#*(NPKH(':*(B*-"/B($&#E*
79(Z ("/B(':*(9&..50($&#E*(79(U 2((T6(':*('"4(79(7-.%9*B(%/(.#%B&$*#9H(':*(9&..50
$&#E*(9:76'9(&.(@0(':*("-%&/'(%6(':*('"4([LW($*/'9\('%(U 2((O:*/(':*(*M&757@#7&M&"/'7'0(79(R H(':*(.#7$*(."7B(@0($%/9&-*#9(79(Q H("/B(':*(.#7$*(#*$*7E*B(["6'*#
'"4*9("#*(."7B\(@0(.#%B&$*#9(79(Q P(LW($*/'92((T6(':*('"4(79(7/9'*"B(7-.%9*B(%/
$%/9&-*#9H(':*(B*-"/B($&#E*(9:76'9(B%</(@0(':*("-%&/'(%6(':*('"4([LW($*/'9\('%
Z 2((O:*(B%</<"#B(9:76'(7/(':*(B*-"/B($&#E*([<:*/(':*('"4(79(7-.%9*B(%/
$%/9&-*#9\(79(*4"$'50(':*(9"-*(-"8/7'&B*("9(':*(&.<"#B(9:76'(7/(':*(9&..50
$&#E*(<:*/(':*('"4(79(7-.%9*B(%/(.#%B&$*#92((U%("8"7/H(':*(*M&757@#7&-(M&"/'7'0
79(R H(':*(.#7$*(."7B(@0($%/9&-*#9(79(Q ([7/$5&B7/8(':*('"4(."7B('%(':*
8%E*#/-*/'\H("/B(':*(.#7$*(#*$*7E*B(@0(.#%B&$*#9(79(Q P(LW($*/'92
S2
Price of Gasoline
L2
$2
S1
P2
P1
P2 50
D1
D2
Q2 Q1
@2
O:*(-%#*(*5"9'7$(79(':*(B*-"/B($&#E*H(':*(-%#*(*66*$'7E*(':79('"4(<755(@*(7/
#*B&$7/8(':*(M&"/'7'0(%6(8"9%57/*($%/9&-*B2((]#*"'*#(*5"9'7$7'0(%6(B*-"/B(-*"/9
':"'(M&"/'7'0(6"559(-%#*(7/(#*9.%/9*('%(':*(#79*(7/(':*(.#7$*(%6(8"9%57/*2((J78&#*
NPL(755&9'#"'*9(':79(#*9&5'2((Z*-"/B($&#E*(Z (#*.#*9*/'9("/(*5"9'7$(B*-"/B($&#E*H
<:75*(B*-"/B($&#E*(Z (79(-%#*(7/*5"9'7$2((O%(8*'(':*(9"-*('"4(<*B8*(@*'<**/
B*-"/B("/B(9&..50(#*M&7#*9("(8#*"'*#(#*B&$'7%/(7/(M&"/'7'0(<7':(B*-"/B($&#E*
Z (':"/(6%#(B*-"/B($&#E*(Z 2
!"#$%&#'()#"$*(+(,%-."/0
6-4
Price of Gasoline
Supply
tax
D1
tax
D2
Q1
Q2
O:*($%/9&-*#9(%6(8"9%57/*("#*(:&#'(@0(':*('"4(@*$"&9*(':*0(8*'(5*99(8"9%57/*("'("
:78:*#(.#7$*2((
B2
G%#>*#9(7/(':*(%75(7/B&9'#0("#*(:&#'(@0(':*('"4("9(<*552((G7':("(5%<*#(M&"/'7'0(%6
8"9%57/*(@*7/8(.#%B&$*BH(9%-*(<%#>*#9(-"0(5%9*(':*7#(F%@92((G7':("(5%<*#(.#7$*
#*$*7E*B(@0(.#%B&$*#9H(<"8*9(%6(<%#>*#9(-78:'(B*$57/*2
"2
J78&#*(NPN(9:%<9(':*(*66*$'9(%6(':*(-7/7-&-(<"8*2((T/(':*("@9*/$*(%6(':*
-7/7-&-(<"8*H(':*(-"#>*'(<"8*(<%&5B(@*(< ("/B(R (<%#>*#9(<%&5B(@*
*-.5%0*B2((G7':(':*(-7/7-&-(<"8*([< \(7-.%9*B("@%E*(< H(':*(-"#>*'(<"8*(79
< H(':*(/&-@*#(%6(*-.5%0*B(<%#>*#9(79(R H("/B(':*(/&-@*#(%6(<%#>*#9(<:%("#*
&/*-.5%0*B(79(R (P(R 2((O%'"5(<"8*(."0-*/'9('%(<%#>*#9("#*(9:%</("9(':*("#*"
%6(#*$'"/85*(3),ZH(<:7$:(*M&"59(< ('7-*9(R 2
Wage
N2
$2
unemployment
wm
w1
Supply
Demand
D
C
Q2 Q 1
Quantity of Labor
Q3
!"#$%&#'()#"$*(+(,%-."/0
6-5
3/(7/$#*"9*(7/(':*(-7/7-&-(<"8*(<%&5B(B*$#*"9*(*-.5%0-*/'2((O:*(97V*(%6(':*
*66*$'(%/(*-.5%0-*/'(B*.*/B9(%/50(%/(':*(*5"9'7$7'0(%6(B*-"/B2((O:*(*5"9'7$7'0
%6(9&..50(B%*9/I'(-"''*#H(@*$"&9*(':*#*I9("(9&#.5&9(%6(5"@%#2
$2
O:*(7/$#*"9*(7/(':*(-7/7-&-(<"8*(<%&5B(7/$#*"9*(&/*-.5%0-*/'2((O:*(97V*(%6
':*(#79*(7/(&/*-.5%0-*/'(B*.*/B9(%/(@%':(':*(*5"9'7$7'7*9(%6(9&..50("/B(B*-"/B2(
O:*(*5"9'7$7'0(%6(B*-"/B(B*'*#-7/*9(':*(B*-"/B(6%#(5"@%#H(':*(*5"9'7$7'0(%6
9&..50(B*'*#-7/*9(':*(9&..50(%6(5"@%#H("/B(':*(B766*#*/$*(@*'<**/(':*(9&..50
"/B(B*-"/B(6%#(5"@%#(79(':*("-%&/'(%6(&/*-.5%0-*/'2
B2
T6(':*(B*-"/B(6%#(&/9>755*B(5"@%#(<*#*(7/*5"9'7$H(':*(#79*(7/(':*(-7/7-&-(<"8*
<%&5B(7/$#*"9*('%'"5(<"8*(."0-*/'9('%(&/9>755*B(5"@%#2((G7':(7/*5"9'7$(B*-"/BH
':*(.*#$*/'"8*(B*$57/*(7/(*-.5%0-*/'(<%&5B(@*(5*99(':"/(':*(.*#$*/'"8*(7/$#*"9*
7/(':*(<"8*H(9%('%'"5(<"8*(."0-*/'9(7/$#*"9*2((!%<*E*#H(76(':*(B*-"/B(6%#
&/9>755*B(5"@%#(<*#*(*5"9'7$H('%'"5(<"8*(."0-*/'9(<%&5B(B*$57/*H(97/$*(':*/(':*
.*#$*/'"8*(B*$57/*(7/(*-.5%0-*/'(<%&5B(*4$**B(':*(.*#$*/'"8*(7/$#*"9*(7/(
':*(<"8*2
"2
J78&#*(NP^(9:%<9(':*(*66*$'(%6("('"4(%/(8&/(@&0*#92((O:*('"4(#*B&$*9(':*(B*-"/B
6%#(8&/9(6#%-(Z ('%(Z 2((O:*(#*9&5'(79("(#79*(7/(':*(.#7$*(@&0*#9(."0(6%#(8&/9
6#%-(Q ('%(Q H("/B("(B*$57/*(7/(':*(M&"/'7'0(%6(8&/9(6#%-(R ('%(R 2
Price of Guns
^2
@2
Supply
P2
P1
P2 tax
D1
D2
Q2 Q1
Quantity of Guns
!"#$%&#'()#"$*(+(,%-."/0
6-6
@2
J78&#*(NPX(9:%<9(':*(*66*$'(%6("('"4(%/(8&/(9*55*#92((O:*('"4(#*B&$*9(':*(9&..50
%6(8&/9(6#%-(U ('%(U 2((O:*(#*9&5'(79("(#79*(7/(':*(.#7$*(@&0*#9(."0(6%#(8&/9(6#%Q ('%(Q H("/B("(B*$57/*(7/(':*(M&"/'7'0(%6(8&/9(6#%-(R ('%(R 2
Price of Guns
S2
S1
P2
P1
P2 tax
Demand
Q2 Q1
Quantity of Guns
J78&#*(NPY(9:%<9(':*(*66*$'(%6("(@7/B7/8(.#7$*(65%%#(%/(8&/92((O:*(7/$#*"9*(7/
.#7$*(6#%-(Q ('%(Q (5*"B9('%("(B*$57/*(7/(':*(M&"/'7'0(%6(8&/9(6#%-(R ('%(R 2(
O:*#*(79(*4$*99(9&..50(7/(':*(-"#>*'(6%#(8&/9H(97/$*(':*(M&"/'7'0(9&..57*B([R \
*4$**B9(':*(M&"/'7'0(B*-"/B*B([R \("'(':*(.#7$*(Q 2
Supply
Price of Guns
$2
Pf
P1
Demand
Q2
Q1
Q3
Quantity of Guns
!"#$%&#'()#"$*(+(,%-."/0
6-7
B2
J78&#*(NP1W(9:%<9(':*(*66*$'(%6("('"4(%/("--&/7'7%/2((O:*('"4(%/("--&/7'7%/
#*B&$*9(':*(B*-"/B(6%#(8&/9(6#%-(Z ('%(Z H(@*$"&9*("--&/7'7%/("/B(8&/9("#*
$%-.5*-*/'92((O:*(#*9&5'(79("(B*$57/*(7/(':*(.#7$*(%6(8&/9(6#%-(Q ('%(Q H("/B("
B*$57/*(7/(':*(M&"/'7'0(%6(8&/9(6#%-(R ('%(R 2
Price of Guns
Supply
P1
P2
D1
D2
Q2 Q1
Quantity of Guns
"2
Q#%8#"-9("7-*B("'(-">7/8(':*(.&@57$("<"#*(%6(':*(B"/8*#9(%6(9-%>7/8(#*B&$*
':*(B*-"/B(6%#($78"#*''*9H(9:%</(7/(J78&#*(NP11("9("(9:76'(6#%-(B*-"/B($&#E*
Z ('%(Z 2((O:*(.#7$*(9&..%#'(.#%8#"-(7/$#*"9*9(':*(.#7$*(%6('%@"$$%H(<:7$:(79
':*(-"7/(7/8#*B7*/'(7/($78"#*''*92((39("(#*9&5'H(':*(9&..50(%6($78"#*''*9(9:76'9('%
':*(5*6'H(6#%-(U ('%(U 2((O:*(*66*$'(%6(@%':(.#%8#"-9(79('%(#*B&$*(':*(M&"/'7'0(%6
$78"#*''*($%/9&-.'7%/(6#%-(R ('%(R 2
Supply
Price of Guns
X2
P1
P2
D1
D2
Q2 Q1
Quantity of Guns
!"#$%&#'()#"$*(+(,%-."/0
6-8
Y2
1W2
@2
O:*($%-@7/*B(*66*$'(%6(':*('<%(.#%8#"-9(%/(':*(.#7$*(%6($78"#*''*9(79
"-@78&%&92((O:*(*B&$"'7%/($"-."78/(#*B&$*9(B*-"/B(6%#($78"#*''*9H(<:7$:
'*/B9('%(#*B&$*(':*(.#7$*2((O:*('%@"$$%(.#7$*(9&..%#'9(#"79*(':*($%9'(%6
.#%B&$'7%/(%6($78"#*''*9H(<:7$:('*/B9('%(7/$#*"9*(':*(.#7$*2((
$2
O:*('"4"'7%/(%6($78"#*''*9(6&#':*#(#*B&$*9($78"#*''*($%/9&-.'7%/H(97/$*(7'
7/$#*"9*9(':*(.#7$*('%($%/9&-*#92((39(9:%</(7/(':*(678&#*H(':*(M&"/'7'0(6"559('%
R2
"2
DM&"'7/8(M&"/'7'0(B*-"/B*B('%(M&"/'7'0(9&..57*B(87E*9(AWHWWW(P(YW(Q(_(1WHWWW
`(11W(Q2((U&@'#"$'7/8(1WHWWW("/B("BB7/8(YW(Q('%(@%':(97B*9(%6(':*(*M&"'7%/
87E*9(1WHWWW(_(AWW(Q2((Z7E7B7/8(@%':(97B*9(%6(':*(*M&"'7%/(@0(AWW(87E*9(Q(_
LW2((Q5&887/8(':79(#*9&5'(7/'%(':*(9&..50(*M&"'7%/(87E*9(R(_(1WHWWW(`([11W(4
LW\(_(1LHLWW2((U%(':*(*M&757@#7&-(.#7$*(79(SLW("/B(':*(*M&757@#7&-(M&"/'7'0(79
1LHLWW2
@2
G7':("(.#7$*($*757/8(%6(SKW(.*#('7$>*'H(M&"/'7'0(B*-"/B*B(79(AWHWWW(P([YW(4(KW\
_(1NHKWW2((R&"/'7'0(9&..57*B(79(1WHWWW(`([11W(4(KW\(_(1KHKWW2((O:*#*a9("
9:%#'"8*(7/(':*(-"#>*'(%6(AHWWW('7$>*'92((O:*(.%57$0(B*$#*"9*9(':*(/&-@*#(%6
.*%.5*(<:%("''*/B($5"997$"5(-&97$($%/$*#'9H(97/$*(9&..50(79(5%<*#(@*$"&9*(%6(':*
5%<*#(.#7$*2
J7#9'H(5*'a9(9**(<:"'(':*(*M&757@#7&-(.#7$*("/B(M&"/'7'0("#*(@*6%#*(':*('"4(79(7-.%9*B2(
DM&"'7/8(M&"/'7'0(B*-"/B*B("/B(M&"/'7'0(9&..57*B(87E*9(AW(P(A(Q(_(Q(P(12((3BB7/8(1(`
A(Q('%(@%':(97B*9(%6(':*(*M&"'7%/(87E*9(A1(_(C(Q2((Z7E7B7/8(':#%&8:(@%':(97B*9(@0(C
87E*9(Q(_(^2((3'("(.#7$*(%6(S^H(*M&757@#7&-(M&"/'7'0($"/(@*(6%&/B(7/(*7':*#(':*(9&..50
%#(B*-"/B(*M&"'7%/b((R(_(AW(P([A(4(^\(_(N2
G:*/(':*('"4(79(7-.%9*BH(9&..57*#9(8*'("(.#7$*(':"'a9(SC(5*99(':"/(@&0*#9(."02((c*'(Q(@*
':*(.#7$*(#*$*7E*B(@0(9&..57*#92((O:*/(Q(`(C(79(':*(.#7$*(."7B(@0(@&0*#92((;%<(*M&"'7/8
':*(M&"/'7'0(B*-"/B*B('%(':*(M&"/'7'0(9&..57*B(87E*9(AW(P(A[Q(`(C\(_(Q(P(1H(<:7$:($"/
@*(*4."/B*B('%(AW(P(AQ(P(N(_(Q(P(12((3BB7/8(1(`(A(Q('%(@%':(97B*9(%6(':*(*M&"'7%/(87E*9
1L(_(C(Q2((Z7E7B7/8(':#%&8:(@%':(97B*9(@0(C(87E*9(Q(_(L2((3'("(.#7$*(%6(SLH
*M&757@#7&-(M&"/'7'0($"/(@*(6%&/B(7/(*7':*#(':*(9&..50(%#(B*-"/B(*M&"'7%/b((R(_(AW(P
dA(4([L`C\e(_(K2((U&..57*#9(#*$*7E*(SL(.*#(.7VV"H(<:75*(@&0*#9(."0(SXH("/(7/$#*"9*(7/
.#7$*(%6(S12
112
"2
O:*(*66*$'(%6("(LW($*/'(.*#($%/*(9&@97B0(79('%(9:76'(':*(B*-"/B($&#E*(&.(@0(LW
$*/'9("'(*"$:(M&"/'7'0H(97/$*("'(*"$:(M&"/'7'0("($%/9&-*#a9(<7557/8/*99('%(."0(79
LW($*/'9(:78:*#2((O:*(*66*$'9(%6(9&$:("(9&@97B0("#*(9:%</(7/(J78&#*(NP1A2(
)*6%#*(':*(9&@97B0H(':*(.#7$*(79(Q 2((36'*#(':*(9&@97B0H(':*(.#7$*(#*$*7E*B(@0
9*55*#9(79(Q ("/B(':*(*66*$'7E*(.#7$*(."7B(@0($%/9&-*#9(79(Q H(<:7$:(*M&"59(Q
-7/&9(LW($*/'92(()*6%#*(':*(9&@97B0H(':*(M&"/'7'0(%6($%/*9(9%5B(79(R f("6'*#(':*
9&@97B0(':*(M&"/'7'0(79(R 2
!"#$%&#'()#"$*(+(,%-."/0
6-9
Price of Ice-Cream Cones
Supply
Ps
P1
PD
D2
D1
Q1 Q2
Quantity of Ice-Cream Cones
@2
)*$"&9*(%6(':*(9&@97B0H($%/9&-*#9("#*(@*''*#(%66H(97/$*(':*0($%/9&-*(-%#*("'("
5%<*#(.#7$*2((Q#%B&$*#9("#*("59%(@*''*#(%66H(97/$*(':*0(9*55(-%#*("'("(:78:*#
.#7$*2((O:*(8%E*#/-*/'(5%9*9H(97/$*(7'(:"9('%(."0(6%#(':*(9&@97B02
!"#$%&#'()#"$*(+(,%-."/0
6-10
!"#$%&'()*(!+,-./&'-0(1'+2.3&'-0(#,2(%"&(455636&,37(+5(8#'9&%:.&-%6+,-(5+'(;&<6&=*((>,-=&'12
)&0*#34(56776/8/*33('%(."09($%/3&-*#(3&#.7&39("/:(';*(:*-"/:($&#<*("#*("77($7%3*70
#*7"'*:2((=;*(;*68;'(%>(';*(:*-"/:($&#<*(#*.#*3*/'3(';*(56776/8/*33('%(."0(%>(';*
?&0*#32((,%/3&-*#(3&#.7&3(63(';*("#*"(?*7%5(';*(:*-"/:($&#<*("/:("?%<*(';*(.#6$*9
5;6$;(*@&"73(*"$;(?&0*#43(56776/8/*33('%(."0(7*33(';*(.#6$*(%>(';*(8%%:2
A2
B*77*#34($%3'39(.#%:&$*#(3&#.7&39("/:(';*(3&..70($&#<*("#*("77($7%3*70(#*7"'*:2((=;*
;*68;'(%>(';*(3&..70($&#<*(#*.#*3*/'3(';*($%3'3(%>(';*(3*77*#32((C#%:&$*#(3&#.7&3(63(';*
"#*"(?*7%5(';*(.#6$*("/:("?%<*(';*(3&..70($&#<*9(5;6$;(*@&"73(';*(.#6$*(-6/&3(*"$;
3*77*#34($%3'32
D2
E68&#*(FG1(3;%53(.#%:&$*#("/:($%/3&-*#(3&#.7&3(6/("(3&..70G"/:G:*-"/:(:6"8#"-2
Supply
Price
Consumer
Equilibrium surplus
price
Producer
surplus
Demand
Equilibrium quantity
Quantity
H2
I/("77%$"'6%/(%>(#*3%&#$*3(63(*>>6$6*/'(6>(6'(-"J6-6K*3('%'"7(3&#.7&39(';*(3&-(%>
$%/3&-*#(3&#.7&3("/:(.#%:&$*#(3&#.7&32(()&'(*>>6$6*/$0(-"0(/%'(?*(';*(%/70(8%"7(%>
*$%/%-6$(.%76$0-"L*#3M(';*0(-"0("73%(?*($%/$*#/*:("?%&'(*@&6'0GG';*(>"6#/*33(%>(';*
:63'#6?&'6%/(%>(5*77G?*6/82
!"#$%&#'()#"$*(+(,%-."/0
7-1
N2
=;*(6/<636?7*(;"/:(%>(';*(-"#L*'.7"$*(8&6:*3(';*(3*7>G6/'*#*3'(%>(?&0*#3("/:(3*77*#3(6/'%
.#%-%'6/8(8*/*#"7(*$%/%-6$(5*77G?*6/82((O*3.6'*(:*$*/'#"76K*:(:*$636%/(-"L6/8("/:
3*7>G6/'*#*3'*:(:*$636%/(-"L*#39(>#**(-"#L*'3(7*":('%("/(*>>6$6*/'(%&'$%-*2
P2
=5%('0.*3(%>(-"#L*'(>"67&#*("#*(-"#L*'(.%5*#("/:(*J'*#/"76'6*32((Q"#L*'(.%5*#(-"0
$"&3*(-"#L*'(%&'$%-*3('%(?*(6/*>>6$6*/'(?*$"&3*(5;*/(>6#-3(6/>7&*/$*(.#6$*3(';*0($"&3*
.#6$*("/:(@&"/'6'0('%(:6>>*#(>#%-(';*(7*<*73(';*0R:(?*(&/:*#(.*#>*$'($%-.*'6'6%/9(5;6$;
L**.3('%'"7(3&#.7&3(>#%-(?*6/8(-"J6-6K*:2((SJ'*#/"76'6*3("#*(36:*(*>>*$'3(';"'("#*/R'
'"L*/(6/'%("$$%&/'(?0(?&0*#3("/:(3*77*#32((I3("(#*3&7'9(';*(>#**(-"#L*'(:%*3/R'(-"J6-6K*
'%'"7(3&#.7&32
1'+?@&/-(#,2(>$$@63#%6+,-*((>,-=&'T>("/(*"#70(>#**K*(6/(,"76>%#/6"(3%&#3(';*(7*-%/($#%.9(';*(3&..70($&#<*(>%#(7*-%/3(3;6>'3
'%(';*(7*>'9("3(3;%5/(6/(E68&#*(FGA2((=;*(#*3&7'(63("(#63*(6/(';*(.#6$*(%>(7*-%/3("/:("
:*$76/*(6/($%/3&-*#(3&#.7&3(>#%-(I(U()(U(,('%(V&3'(I2((B%($%/3&-*#(3&#.7&3(:*$76/*3
?0(';*("-%&/'()(U(,2
S2
Price of Lemons
12
S1
A
P2
P1
Demand
Quantity of Lemons
T/(';*(-"#L*'(>%#(7*-%/":*9(';*(;68;*#($%3'(%>(7*-%/3(#*:&$*3(';*(3&..70(%>(7*-%/":*9
"3(3;%5/(6/(E68&#*(FGD2((=;*(#*3&7'(63("(#63*(6/(';*(.#6$*(%>(7*-%/":*("/:("(:*$76/*(6/
$%/3&-*#(3&#.7&3(>#%-(O(U(S(U(E('%(V&3'(O9("(7%33(%>(S(U(E2((W%'*(';"'("/(*<*/'(';"'
">>*$'3($%/3&-*#(3&#.7&3(6/(%/*(-"#L*'(%>'*/(;"3(*>>*$'3(%/($%/3&-*#(3&#.7&3(6/(%';*#
-"#L*'32
!"#$%&#'()#"$*(+(,%-."/0
7-2
Price of Lemonade
S2
S1
D
P2
P1
Demand
Quantity of Lemonade
I(#63*(6/(';*(:*-"/:(>%#(E#*/$;(?#*":(7*":3('%("/(6/$#*"3*(6/(.#%:&$*#(3&#.7&3(6/(';*
-"#L*'(>%#(E#*/$;(?#*":9("3(3;%5/(6/(E68&#*(FGH2((=;*(3;6>'(%>(';*(:*-"/:($&#<*(7*":3
'%("/(6/$#*"3*:(.#6$*9(5;6$;(6/$#*"3*3(.#%:&$*#(3&#.7&3(>#%-("#*"(I('%("#*"(I(U()(U
,2
Price of French Bread
A2
Supply
P2
P1
B
A
D1
D2
Q1 Q2
Quantity of French Bread
!"#$%&#'()#"$*(+(,%-."/0
7-3
Price of Flour
=;*(6/$#*"3*:(@&"/'6'0(%>(E#*/$;(?#*":(?*6/8(3%7:(6/$#*"3*3(';*(:*-"/:(>%#(>7%&#9("3
3;%5/(6/(E68&#*(FGN2((I3("(#*3&7'9(';*(.#6$*(%>(>7%&#(#63*39(6/$#*"36/8(.#%:&$*#(3&#.7&3
>#%-("#*"(O('%(O(U(S(U(E2((W%'*(';"'("/(*<*/'(';"'(">>*$'3(.#%:&$*#(3&#.7&3(6/(%/*
-"#L*'(7*":3('%(*>>*$'3(%/(.#%:&$*#(3&#.7&3(6/(#*7"'*:(-"#L*'32(
Supply
P2
P1
E
D
D1
D2
Quantity of Flour
D2
"2
)*#'R3(:*-"/:(3$;*:&7*(63X(((((((((((
C#6$*
Q%#*(';"/(ZF
ZN('%(ZF
ZD('%(ZN
Z1('%(ZD
Z1(%#(7*33
Y&"/'6'0(:*-"/:*:
[
1
A
D
H
)*#'R3(:*-"/:($&#<*(63(3;%5/(6/(E68&#*(FGP2
?2
\;*/(';*(.#6$*(%>("(?%''7*(%>(5"'*#(63(ZH9()*#'(?&03('5%(?%''7*3(%>(5"'*#2((!63
$%/3&-*#(3&#.7&3(63(3;%5/("3("#*"(I(6/(';*(>68&#*2((!*(<"7&*3(;63(>6#3'(?%''7*(%>
5"'*#("'(ZF9(?&'(."03(%/70(ZH(>%#(6'9(3%(;"3($%/3&-*#(3&#.7&3(%>(ZD2((!*(<"7&*3
;63(3*$%/:(?%''7*(%>(5"'*#("'(ZN9(?&'(."03(%/70(ZH(>%#(6'9(3%(;"3($%/3&-*#
3&#.7&3(%>(Z12((=;&3()*#'R3('%'"7($%/3&-*#(3&#.7&3(63(ZD(U(Z1(](ZH9(5;6$;(63
';*("#*"(%>(I(6/(';*(>68&#*2
!"#$%&#'()#"$*(+(,%-."/0
7-4
Price of Water
$7
$6
A
$5
$4
$3
$2
$1
1
H2
2
3
4
Quantity of Water
$2
\;*/(';*(.#6$*(%>("(?%''7*(%>(5"'*#(>"773(>#%-(ZH('%(ZA9()*#'(?&03(';#**(?%''7*3
%>(5"'*#9("/(6/$#*"3*(%>(%/*2((!63($%/3&-*#(3&#.7&3($%/363'3(%>(?%';("#*"3(I("/:
)(6/(';*(>68&#*9("/(6/$#*"3*(6/(';*("-%&/'(%>("#*"()2((!*(8*'3($%/3&-*#(3&#.7&3
%>(ZN(>#%-(';*(>6#3'(?%''7*(^ZF(<"7&*(-6/&3(ZA(.#6$*_9(ZD(>#%-(';*(3*$%/:(?%''7*
^ZN(<"7&*(-6/&3(ZA(.#6$*_9("/:(Z1(>#%-(';*(';6#:(?%''7*(^ZD(<"7&*(-6/&3(ZA
.#6$*_9(>%#("('%'"7($%/3&-*#(3&#.7&3(%>(Z`2((=;&3($%/3&-*#(3&#.7&3(#63*3(?0(ZN
^5;6$;(63(';*(36K*(%>("#*"()_(5;*/(';*(.#6$*(%>("(?%''7*(%>(5"'*#(>"773(>#%-(ZH('%
ZA2
"2
S#/6*R3(3&..70(3$;*:&7*(>%#(5"'*#(63X
C#6$*
Q%#*(';"/(ZF
ZN('%(ZF
ZD('%(ZN
Z1('%(ZD
Z1(%#(7*33
Y&"/'6'0(3&..76*:
H
D
A
1
[
!"#$%&#'()#"$*(+(,%-."/0
7-5
Price of Water
S#/6*R3(3&..70($&#<*(63(3;%5/(6/(E68&#*(FGF2
$7
$6
$5
$4
$3
$2
$1
N2
2
3
4
Quantity of Water
?2
\;*/(';*(.#6$*(%>("(?%''7*(%>(5"'*#(63(ZH9(S#/6*(3*773('5%(?%''7*3(%>(5"'*#2((!63
.#%:&$*#(3&#.7&3(63(3;%5/("3("#*"(I(6/(';*(>68&#*2((!*(#*$*6<*3(ZH(>%#(;63(>6#3'
?%''7*(%>(5"'*#9(?&'(6'($%3'3(%/70(Z1('%(.#%:&$*9(3%(S#/6*(;"3(.#%:&$*#(3&#.7&3(%>
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$2
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%>(5"'*#9("/(6/$#*"3*(%>(%/*2((!63(.#%:&$*#(3&#.7&3($%/363'3(%>(?%';("#*"3(I("/:
)(6/(';*(>68&#*9("/(6/$#*"3*(?0(';*("-%&/'(%>("#*"()2((!*(8*'3(.#%:&$*#(3&#.7&3
%>(ZN(>#%-(';*(>6#3'(?%''7*(^ZP(.#6$*(-6/&3(Z1($%3'_9(ZD(>#%-(';*(3*$%/:(?%''7*
^ZP(.#6$*(-6/&3(ZD($%3'_9("/:(Z1(>#%-(';*(';6#:(?%''7*(^ZP(.#6$*(-6/&3(ZN(.#6$*_9
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';*(36K*(%>("#*"()_(5;*/(';*(.#6$*(%>("(?%''7*(%>(5"'*#(#63*3(>#%-(ZH('%(ZP2
"2
E#%-(S#/6*R3(3&..70(3$;*:&7*("/:()*#'R3(:*-"/:(3$;*:&7*9(';*(@&"/'6'0
:*-"/:*:("/:(3&..76*:("#*X
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!"#$%&#'()#"$*(+(,%-."/0
7-6
a/70("(.#6$*(%>(ZH(?#6/83(3&..70("/:(:*-"/:(6/'%(*@&676?#6&-9(56';("/
*@&676?#6&-(@&"/'6'0(%>(A2
I'("(.#6$*(%>(ZH9($%/3&-*#(3&#.7&3(63(ZH("/:(.#%:&$*#(3&#.7&3(63(ZH9("3(3;%5/(6/
.#%?7*-3(D("/:(H2((=%'"7(3&#.7&3(63(ZH(U(ZH(](Zb2
$2
T>(S#/6*(.#%:&$*:(%/*(>*5*#(?%''7*9(;63(.#%:&$*#(3&#.7&3(5%&7:(:*$76/*('%(ZD9("3
3;%5/(6/(.#%?7*-(H2((T>()*#'($%/3&-*:(%/*(>*5*#(?%''7*9(;63($%/3&-*#(3&#.7&3
5%&7:(:*$76/*('%(ZD9("3(3;%5/(6/(.#%?7*-(D2((B%('%'"7(3&#.7&3(5%&7:(:*$76/*('%
ZD(U(ZD(](ZP2
:2
T>(S#/6*(.#%:&$*:(%/*("::6'6%/"7(?%''7*(%>(5"'*#9(;63($%3'(5%&7:(?*(ZN9(?&'(';*
.#6$*(63(%/70(ZH9(3%(;63(.#%:&$*#(3&#.7&3(5%&7:(:*$76/*(?0(Z12((T>()*#'($%/3&-*:
%/*("::6'6%/"7(?%''7*(%>(5"'*#9(;63(<"7&*(5%&7:(?*(ZD9(?&'(';*(.#6$*(63(ZH9(3%(;63
$%/3&-*#(3&#.7&3(5%&7:(:*$76/*(?0(Z12((B%('%'"7(3&#.7&3(:*$76/*3(?0(Z1(U(Z1(]
ZA2
"2
=;*(*>>*$'(%>(>"776/8(.#%:&$'6%/($%3'3(6/(';*(-"#L*'(>%#($%-.&'*#3(#*3&7'3(6/("
3;6>'('%(';*(#68;'(6/(';*(3&..70($&#<*9("3(3;%5/(6/(E68&#*(FGb2((I3("(#*3&7'9(';*
*@&676?#6&-(.#6$*(%>($%-.&'*#3(:*$76/*3("/:(';*(*@&676?#6&-(@&"/'6'0(6/$#*"3*32
S1
Price of Computers
P2
?2
S2
P1
P2
B
E
C D
G
Demand
Q1 Q2
!"#$%&#'()#"$*(+(,%-."/0
7-7
=;*(:*$76/*(6/(';*(.#6$*(%>($%-.&'*#3(6/$#*"3*3($%/3&-*#(3&#.7&3(>#%-("#*"(I('%
I(U()(U(,(U(O9("/(6/$#*"3*(6/(';*("-%&/'()(U(,(U(O2((C#6%#('%(';*(3;6>'(6/
3&..709(.#%:&$*#(3&#.7&3(5"3("#*"3()(U(S(^';*("#*"("?%<*(';*(3&..70($&#<*("/:
?*7%5(';*(.#6$*_2((I>'*#(';*(3;6>'(6/(3&..709(.#%:&$*#(3&#.7&3(63("#*"3(S(U(E(U
c2((B%(.#%:&$*#(3&#.7&3($;"/8*3(?0(';*("-%&/'(E(U(c(G()9(5;6$;(-"0(?*
.%36'6<*(%#(/*8"'6<*2((=;*(6/$#*"3*(6/(@&"/'6'0(6/$#*"3*3(.#%:&$*#(3&#.7&39(5;67*
';*(:*$76/*(6/(';*(.#6$*(#*:&$*3(.#%:&$*#(3&#.7&32((B6/$*($%/3&-*#(3&#.7&3(#63*3
?0()(U(,(U(O("/:(.#%:&$*#(3&#.7&3(#63*3(?0(E(U(c(G()9('%'"7(3&#.7&3(#63*3(?0
,(U(O(U(E(U(c2
$2
T>(';*(3&..70(%>($%-.&'*#3(63(<*#0(*7"3'6$9(';*/(';*(3;6>'(%>(';*(3&..70($&#<*
?*/*>6'3($%/3&-*#3(-%3'2((=%('"L*(';*(-%3'(:#"-"'6$($"3*9(3&..%3*(';*(3&..70
$&#<*(5*#*(;%#6K%/'"79("3(3;%5/(6/(E68&#*(FG`2((=;*/(';*#*(63(/%(.#%:&$*#
3&#.7&3("'("772((,%/3&-*#3($".'&#*("77(';*(?*/*>6'3(%>(>"776/8(.#%:&$'6%/($%3'39
56';($%/3&-*#(3&#.7&3(#636/8(>#%-("#*"(I('%("#*"(I(U()2
Price of Computers
?2
A
S1
S2
Demand
F2
"2
E68&#*(FG1[(3;%53(3&..70("/:(:*-"/:($&#<*3(>%#(;"6#$&'32((B&..70(*@&"73
:*-"/:("'("(@&"/'6'0(%>(';#**(;"6#$&'3("/:("(.#6$*(?*'5**/(ZH("/:(ZN2((E6#-3(I9
,9("/:(O(3;%&7:($&'(';*(;"6#(%>(B"7709(C;679("/:(c*#"7:%2((a.#";R3(56776/8/*33('%
."0(63('%%(7%5("/:(>6#-()R3($%3'3("#*('%%(;68;9(3%(';*0(:%(/%'(."#'6$6."'*2((=;*
-"J6-&-('%'"7(3&#.7&3(63(';*("#*"(?*'5**/(';*(:*-"/:("/:(3&..70($&#<*39
5;6$;('%'"73(Z11(^Zb(<"7&*(-6/&3(ZA($%3'(>%#(';*(>6#3'(;"6#$&'9(.7&3(ZF(<"7&*
-6/&3(ZD($%3'(>%#(';*(3*$%/:9(.7&3(ZN(<"7&*(-6/&3(ZH($%3'(>%#(';*(';6#:_2
!"#$%&#'()#"$*(+(,%-."/0
7-8
Price of Haircut
$8
$7
$6
$5
$4
$3
$2
$1
Sally
Phil
C
A
2
3
4
Quantity of Haircuts
T'R3(8%%:(';"'(>6#-3(I9(,9("/:(O("#*($&''6/8(;"6#9(36/$*(';*0("#*(';*(7%5*3'($%3'
.#%:&$*#32(()&'(B"770(d*336*(<"7&*3("(;"6#$&'("'(Zb9(5;67*(a.#";(<"7&*3(6'("'(%/70
ZA2((B%('%'"7(3&#.7&3($%&7:(?*(6/$#*"3*:(?0(ZP(6>(B"770(d*336*(;":(;*#(;"6#($&'
6/3'*":(%>(a.#";2
T/(E68&#*(FG119(';*(6/6'6"7(*@&676?#6&-(63(3;%5/(5;*#*(3&..70(*@&"73(:*-"/:("'(@&"/'6'0
Y 2((=%'"7(3&#.7&3(63(';*("#*"(?*'5**/(';*(3&..70("/:(:*-"/:($&#<*3('%(';*(7*>'(%>(Y 2(
T>(';*(.7"//*#(#*:&$*:(.#%:&$'6%/(%>(';*(8%%:('%(Y 9('%'"7(3&#.7&3(5%&7:(:*$76/*(?0(';*
"#*"(I(6/(';*(>68&#*9(?*$"&3*(.&#$;"3*#3(;"<*("(;68;*#(56776/8/*33('%(."0(>%#(3&$;
%&'.&'(';"/(';*($%3'(%>(.#%:&$6/8(6'2((B6-67"#709("3(3;%5/(6/(E68&#*(FG1A9(6>(';*(.7"//*#
6/$#*"3*:(.#%:&$'6%/(%>(';*(8%%:('%(Y 9('%'"7(3&#.7&3(5%&7:(:*$76/*(?0(';*("#*"()9
?*$"&3*(';*($%3'(%>(.#%:&$6/8(';"'("::6'6%/"7(%&'.&'(*J$**:3(';*(56776/8/*33('%(."0(%>
.&#$;"3*#32
Price
b2
Oprah
?2
Geraldo
Supply
A
Demand
Q2 Q1
Quantity
!"#$%&#'()#"$*(+(,%-."/0
7-9
Price
Supply
Demand
Q1 Q3
Quantity
"2
E68&#*(FG1D(677&3'#"'*3(';*(:*-"/:(>%#(-*:6$"7($"#*2((T>(*"$;(.#%$*:&#*(;"3("
.#6$*(%>(Z1[[9(@&"/'6'0(:*-"/:*:(5677(?*(Y (.#%$*:&#*32
Price of Medical Procedure
`2
$100
Supply
$20
Demand
Q1
Q2
Quantity of Medical Procedures
?2
T>($%/3&-*#3(."0(%/70(ZA[(.*#(.#%$*:&#*9(';*(@&"/'6'0(:*-"/:*:(5677(?*(Y
.#%$*:&#*32((B6/$*(';*($%3'('%(3%$6*'0(63(Z1[[9(';*(/&-?*#(%>(.#%$*:&#*3
.*#>%#-*:(63('%%(7"#8*('%(-"J6-6K*('%'"7(3&#.7&32((=;*(@&"/'6'0(';"'(-"J6-6K*3
'%'"7(3&#.7&3(63(Y (.#%$*:&#*39(5;6$;(63(7*33(';"/(Y 2(
$2
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5;%3*(<"7&*(63(7*33(';"/(';*($%3'(%>(.#%:&$6/8(';*-2
!"#$%&#'()#"$*(+(,%-."/0
7-10
=%(.#*<*/'(';63(*J$*336<*(&3*9(';*($%/3&-*#(-&3'(?*"#(';*(-"#86/"7($%3'(%>(';*
.#%$*:&#*2(()&'(';63(5%&7:(#*@&6#*(*76-6/"'6/8(6/3&#"/$*2((I/%';*#(.%336?676'0
5%&7:(?*(';"'(';*(6/3&#"/$*($%-."/09(5;6$;(."03(-%3'(%>(';*(-"#86/"7($%3'(%>
';*(.#%$*:&#*(^Zb[9(6/(';63($"3*_($%&7:(:*$6:*(5;*';*#(';*(.#%$*:&#*(3;%&7:(?*
.*#>%#-*:2(()&'(';*(6/3&#"/$*($%-."/0(:%*3/4'(8*'(';*(?*/*>6'3(%>(';*
.#%$*:&#*9(3%(6'3(:*$636%/3(-"0(/%'(#*>7*$'(';*(<"7&*('%(';*($%/3&-*#2
"2
E68&#*(FG1H(677&3'#"'*3(';*(*>>*$'(%>(';*(:#%&8;'2((=;*(3&..70($&#<*(3;6>'3('%(';*
7*>'9(7*":6/8('%("(#63*(6/(';*(*@&676?#6&-(.#6$*(>#%-(C ('%(C ("/:("(:*$76/*(6/(';*
*@&676?#6&-(@&"/'6'0(>#%-(Y ('%(Y 2
Price of Water
1[2
:2
S2
S1
P2
P1
Demand
Q3
Q2 Q1
Shortage
Quantity of Water
?2
T>(';*(.#6$*(%>(5"'*#(63(/%'("77%5*:('%($;"/8*9(';*#*(5677(?*("/(*J$*33(:*-"/:
>%#(5"'*#9(56';(';*(3;%#'"8*(3;%5/(%/(';*(>68&#*("3(';*(:6>>*#*/$*(?*'5**/(Y
"/:(Y 2
$2
=;*(303'*-(>%#("77%$"'6/8(5"'*#(63(6/*>>6$6*/'(?*$"&3*(6'(/%(7%/8*#("77%$"'*3
5"'*#('%(';%3*(5;%(<"7&*(6'(-%3'(;68;702((B%-*(.*%.7*(5;%(<"7&*(5"'*#("'(-%#*
';"/(6'3($%3'(%>(.#%:&$'6%/(5677(?*(&/"?7*('%(%?'"6/(6'9(3%(3%$6*'0R3('%'"7(3&#.7&3
63/R'(-"J6-6K*:2
=;*("77%$"'6%/(303'*-(3**-3(&/>"6#("3(5*772((\"'*#(63("77%$"'*:(36-.70(%/(."3'
&3"8*9(#*5"#:6/8(."3'(5"3'*>&7/*332((T>("(>"-670R3(:*-"/:(>%#(5"'*#(6/$#*"3*39
3"0(?*$"&3*(%>("/(6/$#*"3*(6/(>"-670(36K*9(';*(.%76$0(:%*3/R'("77%5(';*-('%
!"#$%&#'()#"$*(+(,%-."/0
7-11
%?'"6/(-%#*(5"'*#2((C%%#(>"-676*39(5;%(.#%?"?70(&3*:(5"'*#(-%3'70(>%#
/*$*33"#0(&3*3(76L*(:#6/L6/89(5%&7:(3&>>*#(-%#*(';"/(5*"7';6*#(>"-676*3(5;%
5%&7:(;"<*('%($&'(?"$L(%/70(%/(7&J&#0(&3*3(%>(5"'*#(76L*(%.*#"'6/8(?"$L0"#:
>%&/'"6/3("/:(.%%732((!%5*<*#9(';*(.%76$0("73%(L**.3(';*(.#6$*(%>(5"'*#(7%5*#9
5;6$;(?*/*>6'3(.%%#(>"-676*39(36/$*(%';*#563*(-%#*(%>(';*6#(>"-670(?&:8*'(5%&7:
;"<*('%(8%(>%#(5"'*#2
:2
T>(';*($6'0("77%5*:(';*(.#6$*(%>(5"'*#('%(#63*('%(6'3(*@&676?#6&-(.#6$*(C 9(';*
"77%$"'6%/(5%&7:(?*(-%#*(*>>6$6*/'2((Y&"/'6'0(3&..76*:(5%&7:(*@&"7(@&"/'6'0
:*-"/:*:("/:(';*#*(5%&7:(?*(/%(3;%#'"8*2((=%'"7(3&#.7&3(5%&7:(?*(-"J6-6K*:2
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#*:&$'6%/(6/(5"'*#(&/:*#(';*(%7:(.%76$0(63(:6>>6$&7'('%(3"09(?&'(6'(63(76L*70('%(?*
-%#*(>"6#2((W%'6$*(';"'(';*(@&"/'6'0(3&..76*:(5%&7:(?*(;68;*#(^Y _(6/(';63($"3*
';"/(&/:*#(';*(5"'*#(#*3'#6$'6%/3(^Y _9(3%(';*#*R3(7*33(#*:&$'6%/(6/(5"'*#(&3"8*2(
=%(-"L*(';*(-"#L*'(3%7&'6%/(*<*/(-%#*(>"6#9(';*(8%<*#/-*/'($%&7:(.#%<6:*
6/$#*"3*:('"J(#*76*>(%#(5*7>"#*(."0-*/'3(>%#(.%%#(>"-676*3(5;%(3&>>*#(>#%."06/8(';*(;68;*#(5"'*#(.#6$*32
112
=;*(L*0("33&-.'6%/(';"'(V&3'6>6*3(*$%/%-63'3R(&3*(%>($%/3&-*#(3&#.7&3("3("(-*"3&#*(%>
*$%/%-6$(5*77G?*6/8(63(';"'(';*(:*-"/:($&#<*(#*.#*3*/'3(';*(?*/*>6'3(?&0*#3(#*$*6<*
>#%-("(8%%:2((B6/$*(":<*#'636/8($"/(6/$#*"3*(';*(:*-"/:(>%#("(.#%:&$'(?0($;"/86/8
.*%.7*R3(.*#$*.'6%/3(%>(';*(?*/*>6'3(%>("(8%%:9(';*/(';*(:*-"/:($&#<*(*<6:*/'70(:%*3/R'
#*.#*3*/'(';*(?*/*>6'3(?&0*#3(#*$*6<*(>#%-("(8%%:2((B%($%/3&-*#(3&#.7&3(-"0(/%'(?*("
8%%:(-*"3&#*(%>(*$%/%-6$(5*77G?*6/89(36/$*(6'(63(3&?V*$'('%(-"/6.&7"'6%/(?0
":<*#'636/82
!"#$%&#'()#"$*(+(,%-."/0
7-12
!"#$%&'()*((+$$,-.#%-/0*((1"&(!/2%2(/3(1#4#%-/0
56&2%-/02(3/'(7&8-&9*((+029&'2
12
34*/('4*(5"6*(%7("(8%%9(:5('";*9<(=%'4($%/5&-*#(5&#.6&5("/9(.#%9&$*#(5&#.6&5(9*$6:/*2(
>4*(9*$6:/*(:/($%/5&-*#(5&#.6&5("/9(.#%9&$*#(5&#.6&5(*;$**95('4*("-%&/'(%7
8%?*#/-*/'(#*?*/&*('4"'@5(#":5*9<(5%(5%$:*'0@5('%'"6(5&#.6&5(9*$6:/*52((>4*('";(9:5'%#'5
'4*(:/$*/':?*5(%7(=%'4(=&0*#5("/9(5*66*#5<(5%(#*5%&#$*5("#*("66%$"'*9(:/*77:$:*/'602
A2
B:8&#*(CD1(:66&5'#"'*5('4*(9*"9E*:84'(6%55("/9('";(#*?*/&*(7#%-("('";(%/('4*(5"6*(%7("
8%%92((3:'4%&'("('";<('4*(*F&:6:=#:&-(F&"/':'0(E%&69(=*(G <('4*(*F&:6:=#:&-(.#:$*
E%&69(=*(H <($%/5&-*#(5&#.6&5(E%&69(=*(IJ)J,<("/9(.#%9&$*#(5&#.6&5(E%&69(=*
KJLJB2((>4*(:-.%5:':%/(%7("('";(.6"$*5("(E*98*(=*'E**/('4*(.#:$*(=&0*#5(."0<(H <
"/9('4*(.#:$*(5*66*#5(#*$*:?*<(H <(E4*#*(H (M(H (J('";2((>4*(*F&:6:=#:&-(F&"/':'0
9*$6:/*5('%(G 2((N%E($%/5&-*#(5&#.6&5(:5(I<(.#%9&$*#(5&#.6&5(:5(B<("/9(8%?*#/-*/'
#*?*/&*(:5()JK2((>4*(9*"9E*:84'(6%55(%7('4*('";(:5(,JL<(5:/$*('4"'("#*"(:5(6%5'
=*$"&5*(%7('4*(9*$6:/*(:/(F&"/':'0(7#%-(
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Supply
Price
PB
P1
Ps
D
F
Demand
Q2
O2
Q1
Quantity
>4*(8#*"'*#('4*(*6"5':$:':*5(%7(9*-"/9("/9(5&..60<('4*(8#*"'*#('4*(9*"9E*:84'(6%55(%7("
'";2((P:/$*(*6"5':$:'0(-*"5&#*5('4*(#*5.%/5*(%7(F&"/':'0('%("($4"/8*(:/(.#:$*<(4:84*#
*6"5':$:'0(-*"/5('4*('";(:/9&$*5("(8#*"'*#(#*9&$':%/(:/(F&"/':'0<(4*/$*("(8#*"'*#
9:5'%#':%/('%('4*(-"#Q*'2
!"#$%&#'()#"$*(+(,%-."/0
8-1
R2
>4*(9*"9E*:84'(6%55(%7("('";(#:5*5(-%#*('4"/(.#%.%#':%/"660("5('4*('";(#:5*52((>";
#*?*/&*<(4%E*?*#<(-"0(:/$#*"5*(:/:':"660("5('4*('";(#:5*5<(=&'("5('4*('";(#:5*5(7&#'4*#<
#*?*/&*(#:5*5(6*55('4"/(.#%.%#':%/"660("/9(*?*/'&"660(9*$6:/*52
:'/;,&<2(#0=(+$$,-.#%-/02*((+029&'2
"2
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*F&:6:=#:&-(F&"/':'0(:5(G <($%/5&-*#(5&#.6&5(:5("#*"(IJ)J,<("/9(.#%9&$*#
5&#.6&5(:5("#*"(KJLJB2((>4*#*(:5(/%(9*"9E*:84'(6%55<("5("66('4*(.%'*/':"6(8":/5
7#%-('#"9*("#*(#*"6:S*9T('%'"6(5&#.6&5(:5('4*(*/':#*("#*"(=*'E**/('4*(9*-"/9("/9
5&..60($&#?*5DDIJ)J,JKJLJB2
Supply
Price of Pizza
12
PB
P1
Ps
A
B
Demand
Q2 Q1
Quantity of Pizza
=2
3:'4("(U1('";(%/(*"$4(.:SS"(5%69<('4*(.#:$*(.":9(=0(=&0*#5<(H <(:5(/%E(4:84*#
'4"/('4*(.#:$*(#*$*:?*9(=0(5*66*#5<(H <(E4*#*(H (M(H (J(U12((>4*(F&"/':'0
9*$6:/*5('%(G <($%/5&-*#(5&#.6&5(:5("#*"(I<(.#%9&$*#(5&#.6&5(:5("#*"(B<
8%?*#/-*/'(#*?*/&*(:5("#*"()JK<("/9(9*"9E*:84'(6%55(:5("#*"(,JL2(
,%/5&-*#(5&#.6&5(9*$6:/*5(=0()J,<(.#%9&$*#(5&#.6&5(9*$6:/*5(=0(KJL<
8%?*#/-*/'(#*?*/&*(:/$#*"5*5(=0()JK<("/9(9*"9E*:84'(6%55(:/$#*"5*5(=0(,JL2
$2
V7('4*('";(E*#*(#*-%?*9("/9($%/5&-*#5("/9(.#%9&$*#5(?%6&/'"#:60('#"/57*##*9
)JK('%('4*(8%?*#/-*/'('%(-"Q*(&.(7%#('4*(6%5'('";(#*?*/&*<('4*/(*?*#0%/*
E%&69(=*(=*''*#(%77('4"/(E:'4%&'('4*('";2((>4*(*F&:6:=#:&-(F&"/':'0(E%&69(=*(G <
"5(:/('4*($"5*(E:'4%&'('4*('";<("/9('4*(*F&:6:=#:&-(.#:$*(E%&69(=*(H 2((,%/5&-*#
5&#.6&5(E%&69(=*(IJ,<(=*$"&5*($%/5&-*#5(8*'(5&#.6&5(%7(IJ)J,<('4*/
?%6&/'"#:60('#"/57*#()('%('4*(8%?*#/-*/'2((H#%9&$*#(5&#.6&5(E%&69(=*(KJB<
5:/$*(.#%9&$*#5(8*'(5&#.6&5(%7(KJLJB<('4*/(?%6&/'"#:60('#"/57*#(K('%('4*
!"#$%&#'()#"$*(+(,%-."/0
8-2
8%?*#/-*/'2(()%'4($%/5&-*#5("/9(.#%9&$*#5("#*(=*''*#(%77('4"/('4*($"5*(E4*/
'4*('";(E"5(:-.%5*92((V7($%/5&-*#5("/9(.#%9&$*#5(8"?*("(6:''6*(=:'(-%#*('4"/
)JK('%('4*(8%?*#/-*/'<('4*/("66('4#**(."#':*5<(:/$6&9:/8('4*(8%?*#/-*/'<(E%&69
=*(=*''*#(%772((>4:5(:66&5'#"'*5('4*(:/*77:$:*/$0(%7('";"':%/2
A2
O2
R2
"2
>4*(5'"'*-*/'<(WV7('4*(8%?*#/-*/'('";*5(6"/9<(E*"6'40(6"/9%E/*#5(E:66(."55('4*
'";(%/('%('4*:#(.%%#*#(#*/'*#5<W(:5(:/$%##*$'2((3:'4("('";(%/(6"/9<(6"/9%E/*#5($"/
/%'(."55('4*('";(%/2((P:/$*('4*(5&..60($&#?*(%7(6"/9(:5(.*#7*$'60(:/*6"5':$<
6"/9%E/*#5(=*"#('4*(*/':#*(=&#9*/(%7('4*('";2((X*/'*#5(E%/@'(=*("77*$'*9("'("662
=2
>4*(5'"'*-*/'<(WV7('4*(8%?*#/-*/'('";*5("."#'-*/'(=&:69:/85<(E*"6'40
6"/9%E/*#5(E:66(."55('4*('";(%/('%('4*:#(.%%#*#(#*/'*#5<W(:5($%##*$'2((3:'4("('";
%/("."#'-*/'(=&:69:/85<(6"/9%E/*#5($"/(-%#*(*"5:60(."55('4*('";(%/<('4%&84('4*
*;'*/'('%(E4:$4('4*0(9%('4:5(9*.*/95(%/('4*(*6"5':$:':*5(%7(5&..60("/9(9*-"/92(
V/('4:5($"5*<('4*('";(:5("(9:#*$'("99:':%/('%('4*($%5'(%7(#*/'"6(&/:'5<(5%('4*(5&..60
$&#?*(E:66(54:7'(&.(=0('4*("-%&/'(%7('4*('";2((>4*('";(E:66(=*(54"#*9(=0(#*/'*#5
"/9(6"/9%E/*#5<(9*.*/9:/8(%/('4*(*6"5':$:':*5(%7(9*-"/9("/9(5&..602
"2
>4*(5'"'*-*/'<(WI('";('4"'(4"5(/%(9*"9E*:84'(6%55($"//%'(#":5*("/0(#*?*/&*(7%#
'4*(8%?*#/-*/'<W(:5(:/$%##*$'2((I/(*;"-.6*(:5('4*($"5*(%7("('";(E4*/(*:'4*#
5&..60(%#(9*-"/9(:5(.*#7*$'60(:/*6"5':$2((>4*('";(4"5(/*:'4*#("/(*77*$'(%/
F&"/':'0(/%#("/0(9*"9E*:84'(6%55<(=&'(:'(9%*5(#":5*(#*?*/&*2
=2
>4*(5'"'*-*/'<(WI('";('4"'(#":5*5(/%(#*?*/&*(7%#('4*(8%?*#/-*/'($"//%'(4"?*
"/0(9*"9E*:84'(6%55<W(:5(:/$%##*$'2((I/(*;"-.6*(:5('4*($"5*(%7("(1YY(.*#$*/'('";
:-.%5*9(%/(5*66*#52((3:'4("(1YY(.*#$*/'('";(%/('4*:#(5"6*5(%7('4*(8%%9<(5*66*#5
E%/@'(5&..60("/0(%7('4*(8%%9<(5%('4*('";(E:66(#":5*(/%(#*?*/&*2((Z*'('4*('";(4"5
"(6"#8*(9*"9E*:84'(6%55<(5:/$*(:'(#*9&$*5('4*(F&"/':'0(5%69('%(S*#%2
"2
3:'4(?*#0(*6"5':$(5&..60("/9(?*#0(:/*6"5':$(9*-"/9<('4*(=&#9*/(%7('4*('";(%/
#&==*#(="/95(E:66(=*(=%#/*(6"#8*60(=0(=&0*#52((I5(B:8&#*(CDO(54%E5<($%/5&-*#
5&#.6&5(9*$6:/*5($%/5:9*#"=60<(=0("#*"(IJ)<(=&'(.#%9&$*#(5&#.6&5(9%*5/@'(7"66
-&$4("'("66<([&5'(=0("#*"(,JK2
!"#$%&#'()#"$*(+(,%-."/0
8-3
Price of Rubber Bands
A
C
Supply
B
D
Demand
Quantity of Rubber Bands
=2
3:'4(?*#0(:/*6"5':$(5&..60("/9(?*#0(*6"5':$(9*-"/9<('4*(=&#9*/(%7('4*('";(%/
#&==*#(="/95(E:66(=*(=%#/*(6"#8*60(=0(5*66*#52((I5(B:8&#*(CDR(54%E5<($%/5&-*#
5&#.6&5(9%*5/@'(9*$6:/*(-&$4<([&5'(=0("#*"(IJ)<(E4:6*(.#%9&$*#(5&#.6&5(7"665
5&=5'"/':"660<(=0("#*"(,JK2
Price of Rubber Bands
Supply
A
C
B
D
Demand
Quantity of Rubber Bands
\2
"2
>4*(9*"9E*:84'(6%55(7#%-("('";(%/(4*"':/8(%:6(:5(6:Q*60('%(=*(8#*"'*#(:/('4*(7:7'4
0*"#("7'*#(:'(:5(:-.%5*9(#"'4*#('4"/('4*(7:#5'(0*"#2((V/('4*(7:#5'(0*"#<('4*(*6"5':$:'0
%7(9*-"/9(:5(7":#60(6%E<("5(.*%.6*(E4%(%E/(%:6(4*"'*#5("#*/@'(6:Q*60('%(8*'(#:9(%7
'4*-(#:84'("E"02(()&'(%?*#(':-*('4*0(-"0(5E:'$4('%(%'4*#(*/*#80(5%&#$*5("/9
.*%.6*(=&0:/8(/*E(4*"'*#5(7%#('4*:#(4%-*5(E:66(-%#*(6:Q*60($4%%5*(8"5(%#
*6*$'#:$<(5%('4*('";(E:66(4"?*("(8#*"'*#(:-."$'(%/(F&"/':'02
!"#$%&#'()#"$*(+(,%-."/0
8-4
=2
>4*('";(#*?*/&*(:5(6:Q*60('%(=*(4:84*#(:/('4*(7:#5'(0*"#("7'*#(:'(:5(:-.%5*9('4"/(:/
'4*(7:7'4(0*"#2((V/('4*(7:#5'(0*"#<(9*-"/9(:5(-%#*(:/*6"5':$<(5%('4*(F&"/':'0
9%*5/@'(9*$6:/*("5(-&$4("/9('";(#*?*/&*(:5(#*6"':?*60(4:842((I5(':-*(."55*5("/9
-%#*(.*%.6*(5&=5':'&'*("E"0(7#%-(%:6<('4*(*F&:6:=#:&-(F&"/':'0(9*$6:/*5<("5(9%*5
'";(#*?*/&*2
]2
P:/$*('4*(9*-"/9(7%#(7%%9(:5(:/*6"5':$<("('";(%/(7%%9(:5("(8%%9(E"0('%(#":5*(#*?*/&*
=*$"&5*(:'(9%*5/@'(6*"9('%(-&$4(%7("(9*"9E*:84'(6%55T('4&5('";:/8(7%%9(:5(6*55(:/*77:$:*/'
'4"/('";:/8(%'4*#('4:/852(()&'(:'(:5/@'("(8%%9(E"0('%(#":5*(#*?*/&*(7#%-("/(*F&:'0(.%:/'
%7(?:*E<(5:/$*(.%%#*#(.*%.6*(5.*/9("(4:84*#(.#%.%#':%/(%7('4*:#(:/$%-*(%/(7%%9<(5%('4*
'";(E%&69(4:'('4*-(4"#9*#('4"/(:'(E%&69(4:'(E*"6'4:*#(.*%.6*2
^2
"2
>4:5('";(4"5(5&$4("(4:84(#"'*('4"'(:'(:5/@'(6:Q*60('%(#":5*(-&$4(#*?*/&*2(()*$"&5*
%7('4*(4:84('";(#"'*<('4*(*F&:6:=#:&-(F&"/':'0(:/('4*(-"#Q*'(:5(6:Q*60('%(=*("'(%#
/*"#(S*#%2
=2
P*/"'%#(_%0/:4"/@5(8%"6(E"5(.#%="=60('%(="/('4*(&5*(%7(4%66%ED':..*9(=&66*'52(
V/('4:5($"5*<("('";(:5("5(*77*$':?*("5("/(%&'#:84'(="/2
"2
B:8&#*(CD\(:66&5'#"'*5('4*(-"#Q*'(7%#(5%$Q5("/9('4*(*77*$'5(%7('4*('";2((3:'4%&'("
'";<('4*(*F&:6:=#:&-(F&"/':'0(E%&69(=*(G <('4*(*F&:6:=#:&-(.#:$*(E%&69(=*(H <
'%'"6(5.*/9:/8(=0($%/5&-*#5(*F&"65('%'"6(#*?*/&*(7%#(.#%9&$*#5<(E4:$4(:5(H (;
G <(E4:$4(*F&"65("#*"()J,JKJLJB<("/9(8%?*#/-*/'(#*?*/&*(:5(S*#%2(>4*
:-.%5:':%/(%7("('";(.6"$*5("(E*98*(=*'E**/('4*(.#:$*(=&0*#5(."0<(H <("/9('4*
.#:$*(5*66*#5(#*$*:?*<(H <(E4*#*(H (M(H (J('";2((>4*(*F&:6:=#:&-(F&"/':'0
9*$6:/*5('%(G 2((N%E('%'"6(5.*/9:/8(=0($%/5&-*#5(:5(H (;(G <(E4:$4(*F&"65("#*"
IJ)J,JK<('%'"6(#*?*/&*(7%#(.#%9&$*#5(:5(H (;(G <(E4:$4(:5("#*"(,JK<("/9
8%?*#/-*/'('";(#*?*/&*(:5(G (;('";<(E4:$4(:5("#*"(IJ)2
=2
>4*(.#:$*(#*$*:?*9(=0(.#%9&$*#5(7"665(=*$"&5*(%7('4*('";<(&/6*55(5&..60(:5
.*#7*$'60(*6"5':$2((>%'"6(#*$*:.'5(7%#(.#%9&$*#5(7"66<(5:/$*(.#%9&$*#5(6%5*(#*?*/&*
*F&"6('%("#*"()JLJB2((
C2
!"#$%&#'()#"$*(+(,%-."/0
8-5
Price of Socks
Supply
PB
P1
Ps
A
B
Demand
Q2 Q1
Quantity of Socks
$2
>4*(.#:$*(.":9(=0($%/5&-*#5(#:5*5<(&/6*55(9*-"/9(:5(.*#7*$'60(*6"5':$2((34*'4*#
'%'"6(5.*/9:/8(=0($%/5&-*#5(#:5*5(%#(7"665(9*.*/95(%/('4*(.#:$*(*6"5':$:'0(%7
9*-"/92((V7(9*-"/9(:5(*6"5':$<('4*(.*#$*/'"8*(9*$6:/*(:/(F&"/':'0(*;$**95('4*
.*#$*/'"8*(:/$#*"5*(:/(.#:$*<(5%('%'"6(5.*/9:/8(9*$6:/*52((V7(9*-"/9(:5(:/*6"5':$<
'4*(.*#$*/'"8*(9*$6:/*(:/(F&"/':'0(:5(6*55('4"/('4*(.*#$*/'"8*(:/$#*"5*(:/(.#:$*<
5%('%'"6(5.*/9:/8(#:5*52((34*'4*#('%'"6($%/5&-*#(5.*/9:/8(7"665(%#(#:5*5<
$%/5&-*#(5&#.6&5(9*$6:/*5(=*$"&5*(%7('4*(:/$#*"5*(:/(.#:$*("/9(#*9&$':%/(:/
F&"/':'02
`2
P:/$*('4*('";(%/(8"98*'5(E"5(*6:-:/"'*9<("66('";(#*?*/&*(-&5'($%-*(7#%-('4*('";(%/
E:98*'52((>4*('";(#*?*/&*(7#%-('4*('";(%/(E:98*'5(*F&"65('4*('";(.*#(&/:'(':-*5('4*
F&"/':'0(.#%9&$*92((P:/$*('4*(:/$#*"5*9('";($"&5*5("(5-"66*#(F&"/':'0(%7(E:98*'5('%(=*
.#%9&$*9<('4*/(:'@5(:-.%55:=6*(7%#('";(#*?*/&*('%(9%&=6*DD-&6':.60:/8('4*('";(.*#(&/:'
aE4:$4(9%&=6*5b(':-*5('4*(F&"/':'0(aE4:$4(9*$6:/*5b(8:?*5("(/&-=*#('4"'(:5(6*55('4"/
9%&=6*('4*(%#:8:/"6('";(#*?*/&*(7#%-(E:98*'52((P%('4*(8%?*#/-*/'@5('";($4"/8*(E:66
0:*69(6*55(-%/*0('4"/(=*7%#*2
1Y2
"2
B:8&#*(CD](:66&5'#"'*5('4*(*77*$'5(%7('4*('";(:/$#*"5*(%/('4*(/*E($"#(-"#Q*'(:/
N*E(c*#5*02((>4*(F&"/':'0(%7($"#5(5%69(9*$6:/*5(7#%-(G ('%(G <('4*(.#:$*(.":9(=0
$%/5&-*#5(#:5*5(7#%-(H ('%((H <("/9('4*(.#:$*(#*$*:?*9(=0(.#%9&$*#5(9*$6:/*5
7#%-(H ('%((H <(E4*#*(H (M(H (J(U1YY("/9(H (M(H (J(U1\Y2
!"#$%&#'()#"$*(+(,%-."/0
8-6
Supply
Price of Cars
PB2
PB1
PS1
PS2
Demand
Q2 Q 1
Quantity of Cars
=2
>4*(7%66%E:/8('"=6*(54%E5('4*(E*67"#*(:-."$'(%7('4*($4"/8*(:/('4*('";2
((((((((>?@(
(((ABC
(((!D+AEB
!/026<&'(F6'$,62((((((((((IJ)J,
((((((I
((((
(((((Da)J,b
:'/=6.&'(F6'$,62((((((((((((BJdJ!
((((((!
(((((
(((((DaBJdb
E/8&'0<&0%(7&8&06&(((((((KJL
()JKJB
((Ja)JBb(D(L
1/%#,(F6'$,62((((((IJ)J,JKJLJBJdJ!(((IJ)JKJBJ!(((((((((((((Da,JLJdb
$2
>4*($4"/8*(:/(8%?*#/-*/'(#*?*/&*(:5()(J(B(D(L<(E4:$4($%&69(=*(.%5:':?*(%#
/*8"':?*2
92
>4*($4"/8*(:/(9*"9E*:84'(6%55(:5(.%5:':?*<("5(:'(:/$#*"5*5(=0(,JLJd<(-*"/:/8
'4"'('4*(*$%/%-0("5("(E4%6*(:5(E%#5*(%772
*2
>4*(9*-"/9(7%#($"#5(:/(N*E(c*#5*0(:5(.#%="=60(7":#60(*6"5':$<(5:/$*(.*%.6*($%&69
'#"?*6('%(/*"#=0(5'"'*5('%(=&0($"#52((3:'4(*6"5':$(9*-"/9<("#*"()(:/('4*(7:8&#*
E:66(=*(?*#0(5-"66<(5%('4*("99:':%/"6('";(:5(6*55(6:Q*60('%(:/$#*"5*(8%?*#/-*/'
#*?*/&*2((N*E(c*#5*0($%&69('#0('%(#*9&$*('4*(*6"5':$:'0(%7(9*-"/9(=0(#*F&:#:/8
.*%.6*('%(."0(5"6*5('";('%(N*E(c*#5*0(E4*/('4*0(=&0("($"#(%&'5:9*('4*(5'"'*2
!"#$%&#'()#"$*(+(,%-."/0
8-7
112
B#%-('4*(5'"/9.%:/'(%7(*$%/%-:$(*77:$:*/$0<('4*()#:':54(.%66('";(:5(E%/9*#7&6<(=*$"&5*(:'
9%*5/@'(9:5'%#'("/0(*$%/%-:$(:/$*/':?*5<(5%(4"5(/%(9*"9E*:84'(6%552(()&'(5&$4("('";(:5
:/*F&:'"=6*<(=*$"&5*(:'(:5(-%#*(=&#9*/5%-*(%/('4*(.%%#('4"/(%/('4*(#:$42((I5("(#*5&6'<
'4*('";(E"5(F&:'*(&/.%.&6"#2
1A2
B:8&#*(CD^(:66&5'#"'*5('4*(*77*$'5(%7('4*(UA(5&=5:90(%/("(8%%92((3:'4%&'('4*(5&=5:90<('4*
*F&:6:=#:&-(.#:$*(:5(H ("/9('4*(*F&:6:=#:&-(F&"/':'0(:5(G 2((3:'4('4*(5&=5:90<(=&0*#5
."0(.#:$*(H <(.#%9&$*#5(#*$*:?*(.#:$*(H (aE4*#*(H (M(H (J(UAb<("/9('4*(*F&:6:=#:&F&"/':'0(:5(G 2((>4*(7%66%E:/8('"=6*(:66&5'#"'*5('4*(*77*$'(%7('4*(5&=5:90(%/($%/5&-*#
5&#.6&5<(.#%9&$*#(5&#.6&5<(8%?*#/-*/'(#*?*/&*<("/9('%'"6(5&#.6&52((P:/$*('%'"6(5&#.6&5
9*$6:/*5(=0("#*"(KJ!<('4*(5&=5:90(6*"95('%("(9*"9E*:84'(6%55(:/('4"'("-%&/'2
(>?@(
!/026<&'(F6'$,62 (IJ) (((
:'/=6.&'(F6'$,62
((LJV ((((((
(((((((((ABC
(((((((((((((!D+AEB
(IJ)JLJBJd
(((((((((((JaLJBJdb
(((()J,JLJV
((Ja)J,b
E/8&'0<&0%(7&8&06&((((((Y((((((((Da)J,JKJLJBJdJ!b(((Da)J,JKJLJBJdJ!b
1/%#,(F6'$,62(((((((((((IJ)JLJV((((((((IJ)DKJLD!JV((((((((((((((((((DaKJ!b
Supply
Price
Ps
P1
PB
F G
D
H
Demand
Q1
Q2
Quantity
!"#$%&#'()#"$*(+(,%-."/0
8-8
"2
P*'':/8(F&"/':'0(5&..6:*9(*F&"6('%(F&"/':'0(9*-"/9*9(8:?*5(AH(M(OYY(D(H2((I99:/8
H('%(=%'4(5:9*5(%7('4*(*F&"':%/(8:?*5(OH(M(OYY2((K:?:9:/8(=%'4(5:9*5(=0(O(8:?*5(H
M(1YY2((H6&88:/8(H(M(1YY(="$Q(:/'%(*:'4*#(*F&"':%/(7%#(F&"/':'0(9*-"/9*9(%#
5&..6:*9(8:?*5(G(M(AYY2
=2
N%E(H(:5('4*(.#:$*(#*$*:?*9(=0(5*66*#5("/9(HJ>(:5('4*(.#:$*(.":9(=0(=&0*#52(
LF&"':/8(F&"/':'0(9*-"/9*9('%(F&"/':'0(5&..6:*9(8:?*5(AH(M(OYY(D(aHJ>b2((I99:/8
H('%(=%'4(5:9*5(%7('4*(*F&"':%/(8:?*5(OH(M(OYY(D(>2((K:?:9:/8(=%'4(5:9*5(=0(O(8:?*5
H(M(1YY(D(>eO2((>4*/(HJ>(M(1YY(J(A>eO2((>4*(F&"/':'0(5%69(:5(/%E(G(M(AH(M
AYY(D(A>eO2((>4*(.#:$*(#*$*:?*9(=0(5*66*#5(9*$6:/*5(7#%-(1YY('%(1YY(D(>eO2((>4*
.#:$*(.":9(=0(=&0*#5(:/$#*"5*5(7#%-(1YY('%(1YY(J(A>eO2((>4*(F&"/':'0(5%69
9*$6:/*5(7#%-(AYY('%(AYY(D(A>eO2
$2
P:/$*('";(#*?*/&*(:5(>;G("/9(G(M(AYY(D(A>eO<('4*/('";(#*?*/&*(*F&"65(AYY(>(D
A> eO2((B:8&#*(CDC(54%E5("(8#".4(%7('4:5(#*6"':%/54:.2((>";(#*?*/&*(:5(S*#%("'(>(M
Y("/9("'(>(M(OYY2
Tax Revenue
1O2
300
T
92
I5(B:8&#*(CD`(54%E5<('4*("#*"(%7('4*('#:"/86*(a6":9(%/(:'5(5:9*b('4"'(#*.#*5*/'5('4*
9*"9E*:84'(6%55(:5(1eA(;(="5*(;(4*:84'<(E4*#*('4*(="5*(:5('4*($4"/8*(:/('4*(.#:$*<
E4:$4(:5('4*(5:S*(%7('4*('";<(><("/9('4*(4*:84'(:5('4*("-%&/'(%7('4*(9*$6:/*(:/
F&"/':'0<(E4:$4(:5(A>eO2((P%('4*(9*"9E*:84'(6%55(*F&"65(1eA(;(>(;(A>eO(M(> eO2(
>4:5(#:5*5(*;.%/*/':"660(7#%-(Y(aE4*/(>(M(Yb('%(R\<YYY(E4*/(>(M(OYY<("5(54%E/
:/(B:8&#*(CD1Y2
!"#$%&#'()#"$*(+(,%-."/0
8-9
base = T
height =
2T
3
Supply
Price
100 +
2T
3
100
100
T
3
Demand
Deadweight Loss
200
2T
3
200
Quantity
45,000
300
T
*2
I('";(%7(UAYY(.*#(&/:'(:5("(="9(:9*"<(=*$"&5*(:'@5(:/("(#*8:%/(:/(E4:$4('";(#*?*/&*(:5
9*$6:/:/82((>4*(8%?*#/-*/'($%&69(#*9&$*('4*('";('%(U1\Y(.*#(&/:'<(8*'(-%#*('";(#*?*/&*
aU1\<YYY(E4*/('4*('";(:5(U1\Y(?*#5&5(U1O<OOO(E4*/('4*('";(:5(UAYYb<("/9(#*9&$*('4*
9*"9E*:84'(6%55(a^\YY(E4*/('4*('";(:5(U1\Y($%-."#*9('%(1O<OOO(E4*/('4*('";(:5(UAYYb2
!"#$%&#'()#"$*(+(,%-."/0
8-10
!"#$%&'()*((+$$,-.#%-/0*(10%&'0#%-/0#,(2'#3&
45&6%-/06(7/'(8&9-&:*((+06:&'6
12
34('5*(6%-*7'8$(.#8$*('5"'(.#*9"8:7(;8'5%&'(8/'*#/"'8%/":('#"6*(87("<%9*('5*(;%#:6(.#8$*=
'5*($%&/'#0(6%*7(/%'(5"9*("($%-."#"'89*("69"/'">*(8/(.#%6&$8/>('5*(>%%62((34('5*
6%-*7'8$(.#8$*(87(<*:%;('5*(;%#:6(.#8$*=('5*($%&/'#0(5"7("($%-."#"'89*("69"/'">*(8/
.#%6&$8/>('5*(>%%62((
?2
34("($%&/'#0(5"7("($%-."#"'89*("69"/'">*(8/(.#%6&$8/>("(>%%6=(8'(;8::(<*$%-*("/
*@.%#'*#(;5*/('#"6*(87("::%;*62((34("($%&/'#0(6%*7(/%'(5"9*("($%-."#"'89*("69"/'">*(8/
.#%6&$8/>("(>%%6=(8'(;8::(<*$%-*("/(8-.%#'*#(;5*/('#"6*(87("::%;*62(
A2
B8>&#*(CD1(8::&7'#"'*7(7&..:0("/6(6*-"/6(4%#("/(8-.%#'8/>($%&/'#02(()*4%#*('#"6*(87
"::%;*6=($%/7&-*#(7&#.:&7(87("#*"(E("/6(.#%6&$*#(7&#.:&7(87("#*"()(F(,2((E4'*#('#"6*
87("::%;*6=($%/7&-*#(7&#.:&7(87("#*"(E(F()(F(G("/6(.#%6&$*#(7&#.:&7(87("#*"(,2((H5*
$5"/>*(8/('%'":(7&#.:&7(87("/(8/$#*"7*(<0("#*"(G2
Price
Domestic
supply
Price
before
trade
Price
after
trade
A
B
C
World
price
D
Imports
Domestic
demand
Quantity
I2
H5*("#>&-*/'7(>89*/('%(7&..%#'('#"6*(#*7'#8$'8%/7("#*J((K1L('#"6*(6*7'#%07(M%<7N(K?L
8/6&7'#8*7('5#*"'*/*6(;8'5($%-.*'8'8%/(-"0(<*(98'":(4%#(/"'8%/":(7*$&#8'0N(KAL(/*;
8/6&7'#8*7(/**6('#"6*(#*7'#8$'8%/7('%(5*:.('5*-(>*'(7'"#'*6N(KIL(7%-*($%&/'#8*7(&/4"8#:0
7&<7868O*('5*8#(48#-7=(7%($%-.*'8'8%/(87/P'(4"8#N("/6(KQL('#"6*(#*7'#8$'8%/7($"/(<*(&7*4&:
<"#>"8/8/>($58.72((R$%/%-87'7(687">#**(;8'5('5*7*("#>&-*/'7J((K1L('#"6*(-"0(6*7'#%0
7%-*(M%<7=(<&'(8'($#*"'*7(%'5*#(M%<7N(K?L("#>&-*/'7("<%&'(/"'8%/":(7*$&#8'0('*/6('%(<*
*@">>*#"'*6N(KAL('5*(>%9*#/-*/'($"/P'(*"78:0(86*/'840(/*;(8/6&7'#8*7('5"'("#*(;%#'5
!"#$%&#'()#"$*(+(,%-."/0
9-1
.#%'*$'8/>N(KIL(84($%&/'#8*7(7&<7868O*('5*8#(*@.%#'7=(6%8/>(7%(78-.:0(<*/*48'7($%/7&-*#7N
"/6(KQL(<"#>"8/8/>(%9*#('#"6*(87("(#87S0(<&78/*77=(78/$*(8'(-"0(<"$S48#*=(-"S8/>('5*
$%&/'#0(;%#7*(%44(;8'5%&'('#"6*2
;'/<,&=6(#03(+$$,-.#%-/06*((+06:&'6
"2
3/(B8>&#*(CD?=(;8'5(/%(8/'*#/"'8%/":('#"6*('5*(*T&8:8<#8&-(.#8$*(87(U ("/6('5*
*T&8:8<#8&-(T&"/'8'0(87(V 2((,%/7&-*#(7&#.:&7(87("#*"(E("/6(.#%6&$*#(7&#.:&7(87
"#*"()(F(,=(7%('%'":(7&#.:&7(87(E(F()(F(,2((
Price of Oranges
12
Supply
A
P1
Pw
DE
C
Demand
Q1 Qo
Qs
Quantity of Oranges
?2
<2
W5*/('5*(X2Y2(%#"/>*(-"#S*'(87(%.*/*6('%('#"6*=('5*(/*;(*T&8:8<#8&-(.#8$*(87
U =('5*(T&"/'8'0($%/7&-*6(87(V =('5*(T&"/'8'0(.#%6&$*6(6%-*7'8$"::0(87(V =("/6
'5*(T&"/'8'0(8-.%#'*6(87(V (D(V 2((,%/7&-*#(7&#.:&7(8/$#*"7*7(4#%-(E('%(E(F()
F(G(F(R2((U#%6&$*#(7&#.:&7(6*$#*"7*7(4#%-()(F(,('%(,2((H%'":(7&#.:&7
8/$#*"7*7(4#%-(E(F()(F(,('%(E(F()(F(,(F(G(F(R2
"2
B8>&#*(CDA(8::&7'#"'*7('5*(X2Y2(-"#S*'(4%#(;8/*=(;5*#*('5*(;%#:6(.#8$*(%4(;8/*(87
U 2((H5*(4%::%;8/>('"<:*(8::&7'#"'*7('5*(#*7&:'7(&/6*#('5*(5*"68/>(ZU 2Z
((((((((((; (
!/065=&'(B5'$,56 (((EF)FGFR
(((((;
!>+?@A
(((EFG
((DK)FRL
;'/35.&'(B5'$,56
((((((((((,
((()F,
2/%#,(B5'$,56
EF)F,FGFR(((((EF)F,FG
!"#$%&#'()#"$*(+(,%-."/0
9-2
(((((((((((((((F)
((((((DR
Price of Wine
Supply
A
P2
P1
D
E
C
Demand
Quantity of Wine
<2
A2
H5*(7584'(8/('5*([&:4(Y'#*"-(6*7'#%07(7%-*(%4('5*(>#".*(5"#9*7'=(#"878/>('5*
;%#:6(.#8$*(%4(;8/*('%(U 2((H5*('"<:*(75%;7('5*(*44*$'7(%/($%/7&-*#=(.#%6&$*#=
"/6('%'":(7&#.:&7=(&/6*#('5*(5*"68/>(ZU Z("/6('5*($5"/>*(8/('5*(7&#.:&7(-*"7&#*7
&/6*#('5*(5*"68/>(Z,!E\[R2Z((,%/7&-*#7(:%7*=(.#%6&$*#7(;8/=("/6('5*
X/8'*6(Y'"'*7("7("(;5%:*(87(;%#7*(%442
B8>&#*(CDI(75%;7('5*(-"#S*'(4%#($%''%/(8/($%&/'#8*7(E("/6()2((\%'*('5"'('5*(;%#:6(.#8$*
%4($%''%/(87('5*(7"-*(8/(<%'5($%&/'#8*72((,%&/'#0(E(8-.%#'7($%''%/(4#%-($%&/'#0()2(
H5*('"<:*(<*:%;(75%;7('5"'('%'":(7&#.:&7(87(58>5*#(8/(<%'5($%&/'#8*72((!%;*9*#=(8/
$%&/'#0(E=($%/7&-*#7("#*(<*''*#(%44("/6(.#%6&$*#7("#*(;%#7*(%44=(;58:*(8/($%&/'#0()=
$%/7&-*#7("#*(;%#7*(%44("/6(.#%6&$*#7("#*(<*''*#(%442
((((((((CDE(
(((?AF
!>+?@A
(,FGFB
(FKGFBL
!/50%'G(+
!/065=&'(B5'$,56 ((((((((((,
;'/35.&'(B5'$,56
((((((((GFR
((((((R
((((((DG
2/%#,(B5'$,56
(((((,FGFR
,FGFRFB
(((((FB
((((((([
((((((D!
!/50%'G(H
!/065=&'(B5'$,56 ((((((([F!
;'/35.&'(B5'$,56
((((((((((3
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2/%#,(B5'$,56
(((([F!F3
[F!F3F]
(((((F]
!"#$%&#'()#"$*(+(,%-."/0
9-3
C
P1
D
Pw
P2
SB
pB
pA
SA
H
I
DA
DB
QA
Country A
W5*/('5*(;%#:6(.#8$*(%4("(>%%6(87("<%9*('5*(/%D'#"6*(.#8$*=('5*($%&/'#0(;8::(*@.%#'('5*
>%%6=(7%("('"#844(;8::(5"9*(/%(*44*$'(78/$*('5*#*(;8::(<*(/%(8-.%#'72((34('5*(;%#:6(.#8$*(87
<*:%;('5*(/%D'#"6*(.#8$*=("('"#844('5"'(*@$**67('5*(6844*#*/$*(<*';**/('5%7*(.#8$*7(:*"67
'5*($%&/'#0('%(8-.%#'(/%'58/>2((RT&8:8<#8&-(%$$&#7(;5*#*(T&"/'8'0(7&..:8*6(*T&":7
T&"/'8'0(6*-"/6*6(;8'5(/%('#"6*2((E7(B8>&#*(CDQ(75%;7=('5*(/%D'#"6*(*T&8:8<#8&-(.#8$*
87(U ("/6('5*(;%#:6(.#8$*(87(U 2((W8'5('5*('"#844(%/(8-.%#'7=('5*(.#8$*('%($%/7&-*#7(87
U (F('=(<&'("'('5"'(.#8$*=(7&..:0(*@$**67(6*-"/6=(7%('5*#*(;8::(<*(/%(8-.%#'72((E7("
#*7&:'=('5*(*T&8:8<#8&-(.#8$*(;8::(<*(U 2((Y8/$*('5*('"#844(.#*9*/'7('#"6*(4#%-(%$$&##8/>=
8'(#*6&$*7('5*($%&/'#0P7('%'":(7&#.:&72
Supply
Price
I2
QB
Country B
Pw+t
P1
Pw
Demand
Quantity
!"#$%&#'()#"$*(+(,%-."/0
9-4
H5*(8-."$'(%4("('"#844(%/(8-.%#'*6("&'%7(8/(75%;/(8/(B8>&#*(CD^2((W8'5%&'('5*('"#844=('5*
.#8$*(%4("/("&'%(87(U =('5*(T&"/'8'0(.#%6&$*6(8/('5*(X/8'*6(Y'"'*7(87(V =("/6('5*
T&"/'8'0(.&#$5"7*6(8/('5*(X/8'*6(Y'"'*7(87(V 2((H5*(X/8'*6(Y'"'*7(8-.%#'7("&'%7(8/('5*
T&"/'8'0(V (D(V 2((H5*(8-.%78'8%/(%4('5*('"#844(#"87*7('5*(.#8$*(%4("&'%7('%(U (F('=
$"&78/>("/(8/$#*"7*(8/(T&"/'8'0(7&..:8*6(<0(X2Y2(.#%6&$*#7('%(V ("/6("(6*$:8/*(8/('5*
T&"/'8'0(6*-"/6*6('%((V =('5&7(#*6&$8/>('5*(/&-<*#(%4(8-.%#'7('%((V (D(V 2((H5*
'"<:*(75%;7('5*(8-."$'(%/($%/7&-*#(7&#.:&7=(.#%6&$*#(7&#.:&7=(>%9*#/-*/'(#*9*/&*=
"/6('%'":(7&#.:&7(<%'5(<*4%#*(K_`GL("/6("4'*#(K\RWL('5*(8-.%78'8%/(%4('5*('"#844=("7
;*::("7('5*($5"/>*(K,!E\[RL2((Y8/$*($%/7&-*#(7&#.:&7(6*$:8/*7(<0(,FGFRFB
;58:*(.#%6&$*#(7&#.:&7(#87*7(<0(,("/6(>%9*#/-*/'(#*9*/&*(#87*7(<0(R=(6*"6;*8>5'(:%77
87(GFB2((H5*(:%77(%4($%/7&-*#(7&#.:&7(8/('5*("-%&/'(,FGFRFB(87(7.:8'(&.("7
4%::%;7J((,(>%*7('%(.#%6&$*#7=(R(>%*7('%('5*(>%9*#/-*/'=("/6(GFB(87(6*"6;*8>5'(:%772
((((((((CDE(
((((((((((?AF
((((((!>+?@A
!/065=&'(B5'$,56 EF)F,FGFRFB ((((((((((EF)

;'/35.&'(B5'$,56
((((((((([
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@/9&'0=&0%
(((((((((a
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(
(F,
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2/%#,(B5'$,56(((((EF)F,FGFRFBF[(((((((EF)F,FRF[ ((((((((DKGFBL
Price of Autos
Q2
Supply
Pw+t
Pw
B
E
Demand
Q1s Q2s Q2D Q1D
Quantity of Autos
!"#$%&#'()#"$*(+(,%-."/0
9-5
^2
b2
d2
"2
H5*(;%#:6(;5*"'(.#8$*(-&7'(<*(<*:%;('5*(X2Y2(/%D'#"6*(.#8$*=(<*$"&7*(;5*"'
4"#-*#7(%..%7*(\EBHE2((H5*0(%..%7*(8'(<*$"&7*('5*0(S/%;('5"'(;5*/('#"6*(87
"::%;*6=('5*(X2Y2(.#8$*(%4(;5*"'(;8::(6*$:8/*('%('5*(;%#:6(.#8$*=("/6('5*8#
.#%6&$*#(7&#.:&7(;8::(4"::2((H5*(;%#:6($%#/(.#8$*(-&7'(<*("<%9*('5*(X2Y2(/%D
'#"6*(.#8$*=(78/$*($%#/(4"#-*#7(7&..%#'(\EBHE2((H5*0(S/%;('5"'(;5*/('#"6*(87
"::%;*6=('5*(X2Y2(.#8$*(%4($%#/(;8::(#87*('%('5*(;%#:6(.#8$*=("/6('5*8#(.#%6&$*#
7&#.:&7(;8::(#87*2
<2
,%/786*#8/>(<%'5(-"#S*'7('%>*'5*#=(\EBHE(-"S*7(;5*"'(4"#-*#7(;%#7*(%44("/6
$%#/(4"#-*#7(<*''*#(%44=(7%(8'(87/P'($:*"#(;5*'5*#(4"#-*#7("7("(;5%:*(>"8/(%#(:%7*2(
Y8-8:"#:0=($%/7&-*#7(%4(;5*"'(>"8/(K78/$*('5*(.#8$*(%4(;5*"'(;8::(6*$:8/*L("/6
$%/7&-*#7(%4($%#/(:%7*(K78/$*('5*(.#8$*(%4($%#/(;8::(#87*L=(7%($%/7&-*#7("7("
;5%:*(-"0(*8'5*#(>"8/(%#(:%7*2((!%;*9*#=(;*(S/%;('5"'('5*('%'":(>"8/7(4#%'#"6*("#*(.%78'89*=(7%('5*(X/8'*6(Y'"'*7("7("(;5%:*(87(<*''*#(%442
"2
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Y;8'O*#:"/6(87(c?a("/6('5*(*T&8:8<#8&-(T&"/'8'0(87(Qa('5%&7"/6(;"'$5*72
<2
34('#"6*(87(%.*/*6=(T&"/'8'0(6*-"/6*6(8/(<%'5($%&/'#8*7(*T&":7(T&"/'8'0(7&..:8*6
8/(<%'5($%&/'#8*7("'("(.#8$*(%4(cAa2((H5*(X2Y2(.#8$*(6*$:8/*7("/6('5*(Y;877(.#8$*
#87*72
$2
H5*('%'":(T&"/'8'0(%4(;"'$5*7(.#%6&$*6(8/(<%'5($%&/'#8*7(87(1aQ('5%&7"/62((H5*
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X/8'*6(Y'"'*7($%/7&-*7(ba('5%&7"/6(;"'$5*7("/6(Y;8'O*#:"/6($%/7&-*7(AQ
'5%&7"/6=(7%(Y;8'O*#:"/6(*@.%#'7(Aa('5%&7"/6('%('5*(X/8'*6(Y'"'*72
62
H5*(X2Y2(;"'$5(8/6&7'#0($%/'#"$'7=(7%(*-.:%0-*/'(6*$:8/*72((H5*(Y;877(;"'$5
8/6&7'#0(*@."/67=(7%(*-.:%0-*/'(#87*72((X2Y2(.#%6&$*#7("/6(Y;877($%/7&-*#7
:%7*(;58:*(X2Y2($%/7&-*#7("/6(Y;877(.#%6&$*#7(>"8/2((_9*#"::=('5*#*(87("(>"8/
4#%-('#"6*2
H5*('"@(%/(;8/*(4#%-(,":84%#/8"(87(M&7'(:8S*("('"#844(8-.%7*6(<0(%/*($%&/'#0(%/(8-.%#'7
4#%-("/%'5*#2((E7("(#*7&:'=(W"758/>'%/(.#%6&$*#7(;%&:6(<*(<*''*#(%44("/6(W"758/>'%/
$%/7&-*#7(;%&:6(<*(;%#7*(%442((H5*(58>5*#(.#8$*(%4(;8/*(8/(W"758/>'%/(-*"/7
.#%6&$*#7(;%&:6(.#%6&$*(-%#*(;8/*=(7%('5*0(;%&:6(58#*(-%#*(;%#S*#72((H"@(#*9*/&*
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.%:8$0(<*$"&7*('5*(:%77*7('%(W"758/>'%/($%/7&-*#7(*@$**6('5*(>"8/7('%(.#%6&$*#72
!"#$%&#'()#"$*(+(,%-."/0
9-6
C2
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87(:%;*#('5"/(8'(;%&:6(<*(8/('5*("<7*/$*(%4('#"6*=(7%($%/7&-*#(7&#.:&7(87(58>5*#('5"/(8'
;%&:6(<*(;8'5%&'('#"6*2((H5&7($%/7&-*#7(!"(<*/*48'(4#%-(:%;*#D.#8$*6(8-.%#'72
1a2
Y*::8/>('5*(:8$*/7*7("'("&$'8%/(87('5*(.%:8$0(;8'5('5*(:%;*7'(6*"6;*8>5'(:%77=(78/$*('5*
:8$*/7*7(>%('%('5%7*(;5%(9":&*('5*-('5*(-%7'2((3/("668'8%/=('5*(>%9*#/-*/'(>*'7
#*9*/&*(4#%-(7*::8/>('5*(:8$*/7*7=(7%(8'($"/(#*6&$*('"@*7(*:7*;5*#*=(:%;*#8/>
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.%:8$0(%4(;"8'8/>(8/(:8/*(4%#('5*(:8$*/7*7=(78/$*(.*%.:*(8/$&#('5*(:%77(%4('8-*(8/(;"8'8/>=
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9":&*('5*-(-%7'(58>5:0N(5%;*9*#=('5*(>%9*#/-*/'(;8::(>*'(/%(#*9*/&*=(7%($"/P'(#*6&$*
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687'#8<&'8/>(:8$*/7*7(#"/6%-:02((3'(6%*7/P'(5"9*('5*(6*"6;*8>5'(:%77("77%$8"'*6(;8'5
.*%.:*(7'"/68/>(8/(:8/*=(<&'(6%*7/P'(#"87*(#*9*/&*(:8S*('5*(.%:8$0(%4(7*::8/>('5*(:8$*/7*72
112
"2
B8>&#*(CDb(8::&7'#"'*7('5*(*44*$'7(%4("(T&%'"(8/('5*(X2Y2(7&>"#(-"#S*'2((H5*
6%-*7'8$(7&..:0($&#9*(87(6*/%'*6(Y2(()*4%#*('5*(T&%'"=('5*('%'":(7&..:0($&#9*(87
":%/>($&#9*(Y(4%#(T&"/'8'8*7(4#%-(a('%(V ("/6(87(5%#8O%/'":("'(U =('5*(;%#:6
.#8$*(%4(7&>"#=(4%#(58>5*#(T&"/'8'8*7=(#*.#*7*/'8/>(8-.%#'7(%4(7&>"#2((H5*(#*7&:'
87('5"'('5*(*T&8:8<#8&-(T&"/'8'0(7&..:8*6(87(V =('5*(*T&8:8<#8&-(T&"/'8'0
6*-"/6*6(87(V =(8-.%#'7("#*(V (D(V =("/6('5*(.#8$*(87(U 2((
W5*/('5*(T&%'"(87(8/'#%6&$*6=('5*('%'":(7&..:0($&#9*(87('5*(7"-*("7(;8'5%&'('5*
T&%'"(&.('%('5*(T&"/'8'0(V (F(T&%'"=('5*/(4%::%;7('5*($&#9*(Y(F(T&%'"(4%#
58>5*#(T&"/'8'8*72(((H5*(T&%'"(:8-8'7('5*(T&"/'8'0(%4(8-.%#'7(%4(7&>"#=(:*"68/>('%
*T&8:8<#8&-("'(.#8$*(U 2((H5*(#*7&:'(87('5"'('5*(*T&8:8<#8&-(T&"/'8'0(7&..:8*6(87
V =('5*(*T&8:8<#8&-(T&"/'8'0(6*-"/6*6(87(V =("/6(8-.%#'7("#*(V (D(V 2
S
Price of Sugar
S + quota
A
B
Pq
Pw
E F
Demand
Q 1s Q 2s
Q2D Q1D
Q1s + quota
Quantity of Sugar
!"#$%&#'()#"$*(+(,%-."/0
9-7
<2
H5*(4%::%;8/>('"<:*(8::&7'#"'*7('5*(*44*$'7(%/(;*:4"#*(%4('5*(T&%'"(%/(7&>"#2((H5*
>"8/7('%(:8$*/7*(5%:6*#7(-"0("$$#&*('%(.#89"'*(."#'8*7(84('5*(>%9*#/-*/'(>89*7('5*
T&%'"(:8$*/7*7(";"0=(%#('%('5*(>%9*#/-*/'(84('5*(:8$*/7*7("#*(7%:62
((F-%"/5%(I5/%#(((((((((((((((((((F-%"(I5/%# ((((((((((((!"#0J&
!/065=&'(B5'$,56(EF)F,FGFRPFRZFB
;'/35.&'(B5'$,56
D-.&06&(>/,3&'6
(((((((((((([
((a
((((((EF)
(((((((((((((((((((((((((((,F[
((((((((((((((((RPFRZ
(DK,FGFRPFRZFBL
((((F,
((((((((((FRPFRZ
2/%#,(B5'$,56(((((((EF)F,FGFRPFRZFBF[((EF)F,FRPFRZF[((DKGFBL
1?2
$2
["8/7("/6(:%77*7(8/(%'5*#($%&/'#8*7($%&:6(<*(8-.%#'"/'=(78/$*(;*($"/('#"6*(>"8/7
"$#%77($%&/'#8*7('%(8-.#%9*('5*(;*:4"#*(%4(*9*#0%/*2((3/("668'8%/=(8'(87/P'($:*"#
'5"'(;*(75%&:6(<*(8/($&''5#%"'($%-.*'8'8%/(;8'5(%'5*#($%&/'#8*7N(;*(-"0($"#*
"<%&'(.*%.:*('5#%&>5%&'('5*(;%#:62
62
H5*(58>5*#(7&>"#(.#8$*7($"&7*6(<0('5*(T&%'"(707'*-(5"9*(5"6("/(8-."$'(%/('5*
4#&$'%7*(70#&.(8/6&7'#0(78/$*(4#&$'%7*(87("(7&<7'8'&'*(4%#(7&>"#2((W8'5("(58>5*#
7&>"#(.#8$*=(.*%.:*(7&<7'8'&'*(4#&$'%7*(4%#(7&>"#=(7%('5*(4#&$'%7*(8/6&7'#0
*@."/672
E/(*@.%#'(7&<7860(8/$#*"7*7('5*(.#8$*(%4(7'**:(*@.%#'7(#*$*89*6(<0(.#%6&$*#7(<0('5*
"-%&/'(%4('5*(7&<7860=(7=("7(75%;/(8/(B8>&#*(CDd2((H5*(48>&#*(75%;7('5*(;%#:6(.#8$*=
U =(<*4%#*('5*(7&<7860(87(.&'(8/(.:"$*2((E'('5"'(.#8$*=(6%-*7'8$($%/7&-*#7(<&0(T&"/'8'0
V (%4(7'**:=(.#%6&$*#7(7&..:0(V (&/8'7=("/6('5*($%&/'#0(*@.%#'7('5*(T&"/'8'0(V (D(V 2(
W8'5('5*(7&<7860(.&'(8/(.:"$*=(7&..:8*#7(>*'("('%'":(.#8$*(.*#(&/8'(%4(U (F(7=(78/$*('5*0
#*$*89*('5*(;%#:6(.#8$*(4%#('5*8#(*@.%#'7(U =("/6('5*(>%9*#/-*/'(."07('5*-('5*(7&<7860
%4(72((!%;*9*#=(/%'*('5"'(6%-*7'8$($%/7&-*#7($"/(7'8::(<&0(7'**:("'('5*(;%#:6(.#8$*(U =
<0(8-.%#'8/>(8'2((G%-*7'8$(48#-7(6%/P'(;"/'('%(7*::(7'**:('%(6%-*7'8$($&7'%-*#7=(78/$*
'5*0(6%/P'(>*'('5*(7&<7860(4%#(6%8/>(7%2((Y%(6%-*7'8$($%-."/8*7(;8::(7*::("::('5*(7'**:
'5*0(.#%6&$*("<#%"6=(8/('%'":(T&"/'8'0(V 2((G%-*7'8$($%/7&-*#7($%/'8/&*('%(<&0
T&"/'8'0(V 2((H5*($%&/'#0(8-.%#'7(7'**:(8/(T&"/'8'0((V ("/6(*@.%#'7('5*(T&"/'8'0(V =
7%(/*'(*@.%#'7(%4(7'**:("#*('5*(T&"/'8'0(V (D(V 2((H5*(*/6(#*7&:'(87('5"'('5*(6%-*7'8$
.#8$*(%4(7'**:(87(&/$5"/>*6=('5*(T&"/'8'0(%4(7'**:(.#%6&$*6(8/$#*"7*7=('5*(T&"/'8'0(%4
!"#$%&#'()#"$*(+(,%-."/0
9-8
7'**:($%/7&-*6(87(&/$5"/>*6=("/6('5*(T&"/'8'0(%4(7'**:(*@.%#'*6(8/$#*"7*72((E7('5*
4%::%;8/>('"<:*(75%;7=($%/7&-*#(7&#.:&7(87(&/"44*$'*6=(.#%6&$*#(7&#.:&7(#87*7=
>%9*#/-*/'(#*9*/&*(6*$:8/*7=("/6('%'":(7&#.:&7(6*$:8/*72
(((((((F-%"/5%(65<6-3G(
((((EF)
!/065=&'(B5'$,56
((((((((((((((((((((EF) (
((((((((((((((RFBF[
;'/35.&'(B5'$,56
(((((((a
@/9&'0=&0%(8&9&05&
((((F-%"(65<6-3G
((((((
(((DK)F,FGL ((((((((DK)F,FGL
Price of Steel
Supply
Pw
A
B
E
C
G
(((((a
(((((((((((()F,FRFBF[((((FK)F,L
2/%#,(B5'$,56(((((((((((((((((((((EF)FRFBF[(((((((EF)DGFRFBF[
Pw+s
!"#0J&
Demand
Q1D
Q1s Q2s
Quantity of Steel
!"#$%&#'()#"$*(+(,%-."/0
9-9
((((DG
!"#$%&'()*+((,-%&'.#/0%0&1
23&1%04.1(54'(6&70&8+((9.18&'1
12
345&#*(1671(488&9'#"'*9(':*(*;;*$'(%;("(/*5"'4<*(*='*#/"84'0(4/(.#%>&$'4%/2((?:*
*@&484A#4&-(@&"/'4'0(.#%<4>*>(A0(':*(-"#B*'(49(C
2(()*$"&9*(%;(':*(*='*#/"84'0D(':*
9%$4"8($%9'(%;(.#%>&$'4%/(49(5#*"'*#(':"/(':*(.#4<"'*($%9'(%;(.#%>&$'4%/D(9%(':*(9%$4"87$%9'
$&#<*(49("A%<*(':*(9&..80($&#<*2((?:*(%.'4-"8(@&"/'4'0(;%#(9%$4*'0(49(C
2((?:*
.#4<"'*(-"#B*'(.#%>&$*9('%%(-&$:(%;(':*(5%%>D("9(C
(49(5#*"'*#(':"/(C
2
Social cost
Price
Supply
(private cost)
Demand
(private value)
Qoptimum Qmarket
Quantity
E2
F='*#/"84'4*9($"/(A*(9%8<*>(G4':%&'(5%<*#/-*/'(4/'*#<*/'4%/(':#%&5:(-%#"8($%>*9("/>
9%$4"8(9"/$'4%/9(HG:4$:('*88(&9('%(4/'*#/"84I*(*='*#/"84'4*9D(9&$:("9(/%'('%(84''*#JD($:"#4'4*9
H>%/"'4%/9('%(%#5"/4I"'4%/9(84B*(':*(K4*##"(,8&A('%(.#%'*$'(':*(*/<4#%/-*/'(%#('%
&/4<*#94'4*9('%(9&..%#'(*>&$"'4%/JD(-*#54/5(;4#-9(G:%9*(*='*#/"84'4*9(";;*$'(*"$:(%':*#
H;%#(*="-.8*D(':*("..8*(5#%G*#("/>(':*(A**B**.*#JD(%#(A0($%/'#"$'2
L2
M$$%#>4/5('%(':*(,%"9*(':*%#*-D(0%&#(#%%--"'*("/>(0%&(G488(A"#5"4/(%<*#(G:*':*#
0%&#(#%%--"'*(G488(9-%B*(4/(':*(#%%-2((N;(0%&(<"8&*($8*"/("4#(-%#*(':"/(0%&#
#%%--"'*(<"8&*9(9-%B4/5D(':*(A"#5"4/4/5(.#%$*99(G488(8*">('%(0%&#(#%%--"'*(/%'
9-%B4/52(()&'(4;(0%&#(#%%--"'*(<"8&*9(9-%B4/5(-%#*(':"/(0%&(<"8&*($8*"/("4#D(':*
A"#5"4/4/5(.#%$*99(G488(8*">('%(0%&#(#%%--"'*(9-%B4/52((?:*(%&'$%-*(49(*;;4$4*/'("9
8%/5("9('#"/9"$'4%/($%9'9(>%(/%'(.#*<*/'("/("5#**-*/'(;#%-('"B4/5(.8"$*2((?:*(9%8&'4%/
-"0(A*(#*"$:*>(A0(%/*(%;(0%&(."04/5(%;;(':*(%':*#(*4':*#(/%'('%(9-%B*(%#(;%#(':*(#45:'
'%(9-%B*2
!"#$%&#'()#"$*(+(,%-."/0
10-1
O2
F$%/%-49'9(.#*;*#(P45%<4"/('"=*9(%<*#(#*5&8"'4%/9("9("(G"0('%(.#%'*$'(':*(*/<4#%/-*/'
;#%-(.%88&'4%/(A*$"&9*(':*0($"/(#*>&$*(.%88&'4%/("'("(8%G*#($%9'('%(9%$4*'02((M('"=($"/
A*(9*'('%(#*>&$*(.%88&'4%/('%(':*(9"-*(8*<*8("9("(#*5&8"'4%/2((?:*('"=(:"9(':*("><"/'"5*
%;(8*''4/5(':*(-"#B*'(>*'*#-4/*(':*(8*"9'(*=.*/94<*(G"0('%(#*>&$*(.%88&'4%/2((?:*('"=
54<*9(;4#-9(4/$*/'4<*('%(>*<*8%.($8*"/*#('*$:/%8%54*9D(94/$*(>%4/5(9%(#*>&$*9(':*('"=*9
':*0(:"<*('%(."02
:'4;/&<1(#.=(9$$/0>#%04.1+((9.18&'1
12
E2
"2
?:*(9'"'*-*/'D(Q?:*(A*/*;4'9(%;(P45%<4"/('"=*9("9("(G"0('%(#*>&$*(.%88&'4%/
:"<*('%(A*(G*45:*>("5"4/9'(':*(>*">G*45:'(8%99*9(':"'(':*9*('"=*9($"&9*DQ(49
;"89*2((N/(;"$'D(P45%<4"/('"=*9(#*>&$*(':*(4/*;;4$4*/$0(%;(.%88&'4%/(A0(#*>&$4/5
':*(@&"/'4'0(%;(':*(5%%>(A*4/5(.#%>&$*>(':"'(:"9(.%88&'4%/("9("(A07.#%>&$'2((K%D
P45%<4"/('"=*9(#*>&$*(>*">G*45:'(8%99D(':*0(>%/R'(4/$#*"9*(4'2
A2
?:*(9'"'*-*/'D(QM(/*5"'4<*(.#%>&$'4%/(*='*#/"84'0($"889(;%#("(P45%<4"/('"=(%/
.#%>&$*#9D(G:*#*"9("(/*5"'4<*($%/9&-.'4%/(*='*#/"84'0($"889(;%#("(P45%<4"/('"=
%/($%/9&-*#9DQ(49(4/"$$&#"'*2((N'(>%*9/R'(-"''*#(%/(G:%-(':*('"=(49(4-.%9*>77':*
4/$4>*/$*(%;(':*('"=(G488(A*(4>*/'4$"82((K%(G:*':*#(':*(*='*#/"84'0(49(;#%.#%>&$'4%/(%#($%/9&-.'4%/(%;(':*(5%%>D("('"=(%/(*4':*#(.#%>&$*#9(%#($%/9&-*#9
G488(8*">('%(':*(9"-*(#*>&$'4%/(%;(@&"/'4'0("/>($:"/5*(4/(':*(.#4$*9(.#%>&$*#9
#*$*4<*(%#($%/9&-*#9(."02
"2
34#*(*='4/5&49:*#9(*=:4A4'(.%94'4<*(*='*#/"84'4*9(4/($%/9&-.'4%/(A*$"&9*(*<*/
':%&5:(.*%.8*(A&0(':*-(;%#(':*4#(%G/(&9*D(':*0(.#*<*/'(;4#*(;#%-(>"-"54/5(':*
.#%.*#'0(%;(%':*#92((
A2
345&#*(167E(488&9'#"'*9(':*(.%94'4<*(*='*#/"84'0(;#%-(;4#*(*='4/5&49:*#92((S%'4$*
':"'(':*(9%$4"8(<"8&*($&#<*(49("A%<*(':*(>*-"/>($&#<*2
$2
?:*(-"#B*'(*@&484A#4&-(8*<*8(49(>*/%'*>(C
("/>(':*(*;;4$4*/'(8*<*8(%;(%&'.&'
49(>*/%'*>(C
2((?:*(@&"/'4'4*9(>4;;*#(A*$"&9*(4/(>*$4>4/5('%(A&0(;4#*
*='4/5&49:*#9D(.*%.8*(>%/R'("$$%&/'(;%#(':*(A*/*;4'9(':*0(.#%<4>*('%(%':*#
.*%.8*2
>2
M(5%<*#/-*/'(.%84$0(':"'(G%&8>(#*9&8'(4/(':*(*;;4$4*/'(%&'$%-*(G%&8>(A*('%
9&A94>4I*(.*%.8*(T16(;%#(*<*#0(;4#*(*='4/5&49:*#(':*0(A&02
!"#$%&#'()#"$*(+(,%-."/0
10-2
Price of Fire Extinguishers
Supply
(social cost)
Social value
Demand
Qmarket Qoptimum
Quantity of Fire Extinguishers
L2
,:"#4'"A8*(%#5"/4I"'4%/9("#*(-%9'(%;'*/(%#5"/4I*>('%(>*"8(G4':(*='*#/"84'4*92(()0(8*''4/5
$:"#4'"A8*($%/'#4A&'4%/9(A*(>*>&$'4A8*(&/>*#(':*(;*>*#"8(4/$%-*('"=D(':*(5%<*#/-*/'
.#%<4>*9("('"=(9&A94>0('%($:"#4'0D(':&9(*/$%&#"54/5(.#4<"'*(9%8&'4%/9('%(':*(*='*#/"84'02(
P*%.8*($"/(54<*('%(':*(%#5"/4I"'4%/(':"'(':*0(;**8(.#%<4>*9(':*(-%9'(A*/*;4'('%(9%$4*'0D
9%(':*('"=(9&A94>0(-"0(A*(-%#*(*;;*$'4<*(':"/(4;(':*(5%<*#/-*/'(4'9*8;('#4*>('%(9%8<*(':*
*='*#/"84'02((3%#(*="-.8*D($:&#$:*9(-"0(A*(A*''*#("'(:*8.4/5(':*(/**>0(':"/(5%<*#/-*/'
G*8;"#*(.#%5#"-92
O2
N;(':*(KG499(5%<*#/-*/'(9&A94>4I*9($"''8*(;"#-4/5D(4'(-&9'(A*(A*$"&9*(':*#*("#*
*='*#/"84'4*9("99%$4"'*>(G4':(4'2((K4/$*('%&#49'9($%-*('%(KG4'I*#8"/>('%(9**(':*(A*"&'4;&8
$%&/'#094>*D(*/$%&#"54/5(;"#-9D("9(%..%9*>('%(4/>&9'#4"8(>*<*8%.-*/'D(49(4-.%#'"/'('%
-"4/'"4/4/5(':*('%&#49'(4/>&9'#02((?:&9(;"#-9(.#%>&$*("(.%94'4<*(*='*#/"84'0(A0(B**.4/5
':*(8"/>(A*"&'4;&8("/>(&/9.%48*>(A0(>*<*8%.-*/'2((?:*(5%<*#/-*/'R9(9&A94>0(':&9(:*8.9
':*(-"#B*'(.#%<4>*(':*(%.'4-"8("-%&/'(%;(;"#-92
U2
345&#*(167L(9:%G9("(94'&"'4%/(4/(G:4$:(9'&>>*>(9/%G('4#*9(9:%&8>(A*(A"//*>
$%-.8*'*802((?:*(>*-"/>($&#<*(4/'*#9*$'9(':*(9&..80($&#<*("'("(.%94'4<*(@&"/'4'0D
C
2(()&'(':*(>"-"5*('%(:45:G"09($"&9*>(A0(':*(9'&>>*>('4#*9(-*"/9(':*(9%$4"8
<"8&*(%;(':*('4#*9(49(-&$:(8*99(':"/(':*(.#4<"'*(<"8&*(9:%G/(A0(':*(>*-"/>($&#<*2((M9
':*(;45&#*(9:%G9D(4;(':*(9%$4"8(<"8&*($&#<*(>%*9/R'(4/'*#9*$'(':*(9&..80($&#<*D(':*
*;;4$4*/'(@&"/'4'0D(C
D(49(I*#%2
!"#$%&#'()#"$*(+(,%-."/0
10-3
Price of Studded Snow Tires
Supply
Demand
Social value
Qmarket
Qoptimum
Quantity of Studded Snow Tires
Price of Studded Snow Tires
345&#*(167O(488&9'#"'*9(':*(94'&"'4%/(4/(G:4$:(':*(&9*(%;(9'&>>*>(9/%G('4#*9(9:%&8>(A*
#*>&$*>(;#%-(':*(;#**7-"#B*'(8*<*8D(A&'(/%'(A"//*>2((S%G(':*(9%$4"8(<"8&*($&#<*
4/'*#9*$'9(':*(9&..80($&#<*("'("(@&"/'4'0D(C
D(G:4$:(49(8*99(':"/(':*(;#**7-"#B*'
@&"/'4'0D(C
D(A&'(/%'(I*#%2
Supply
Demand
Social value
Qoptimum Qmarket
Quantity of Studded Snow Tires
V2
"2
?:*(*='*#/"8($%9'(%;(.#%>&$4/5("8&-4/&-($"/9("#49*9(;#%-(':*(.%88&'4%/
5*/*#"'*>(4/(':*(.#%>&$'4%/(.#%$*992((?:*(*='*#/"8($%9'(%;(&94/5("8&-4/&-($"/9
$%-*9(;#%-(':*(;"$'(':"'(':*0(>%/R'(>*$%-.%9*D(9%(':*0(8"9'("(8%/5('4-*(4/
8"/>;48892
!"#$%&#'()#"$*(+(,%-."/0
10-4
345&#*(167U(488&9'#"'*9(':*(-"#B*'(;%#("8&-4/&-($"/92((?:*(@&"/'4'0(%;($"/9(':"'
G488(A*(9%8>(4/(':*(;#**(-"#B*'(49(C
D("/>(':*(*;;4$4*/'(@&"/'4'0(49(C
2
Price of Aluminum Cans
A2
Social cost
Supply
Demand
Social value
Qoptimum
Qmarket
Quantity of Aluminum Cans
"2
?:*(-"#B*'(;%#("8$%:%8(49(9:%G/(4/(345&#*(167V2((?:*(9%$4"8(<"8&*($&#<*(49
A*8%G(':*(>*-"/>($&#<*(A*$"&9*(%;(':*(*='*#/"84'0(;#%-(4/$#*"9*>(-%'%#(<*:4$8*
"$$4>*/'9($"&9*>(A0(':%9*(G:%(>#4/B("/>(>#4<*2((?:*(;#**7-"#B*'(*@&484A#4&8*<*8(%;(%&'.&'(49(C
("/>(':*(*;;4$4*/'(8*<*8(%;(%&'.&'(49(C
2
A2
?:*('#4"/5&8"#("#*"(A*'G**/(.%4/'9(MD()D("/>(,(#*.#*9*/'9(':*(>*">G*45:'(8%99
%;(':*(-"#B*'(*@&484A#4&-2((?:49("#*"(9:%G9(':*("-%&/'(A0(G:4$:(9%$4"8($%9'9
*=$**>(9%$4"8(<"8&*(;%#(':*(@&"/'4'0(%;("8$%:%8($%/9&-.'4%/(A*0%/>(':*(*;;4$4*/'
8*<*82
Price of Alcohol
W2
Supply
(social cost)
A
B
C
Demand
Social value
Qoptimum Qmarket
Quantity of Alcohol
!"#$%&#'()#"$*(+(,%-."/0
10-5
X2
Z2
162
"2
N'R9(*;;4$4*/'('%(:"<*(>4;;*#*/'("-%&/'9(%;(.%88&'4%/(#*>&$'4%/("'(>4;;*#*/'(;4#-9
A*$"&9*(':*($%9'9(%;(#*>&$4/5(.%88&'4%/(>4;;*#("$#%99(;4#-92((N;(':*0(G*#*("88
-">*('%(#*>&$*(.%88&'4%/(A0(':*(9"-*("-%&/'D(':*($%9'9(G%&8>(A*(8%G("'(9%-*
;4#-9("/>(.#%:4A4'4<*("'(%':*#9D(4-.%94/5("(5#*"'*#(A&#>*/(%<*#"882
A2
,%--"/>7"/>7$%/'#%8("..#%"$:*9(':"'(#*80(%/(&/4;%#-(.%88&'4%/(#*>&$'4%/
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"2
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A2
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"2
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10-6
Price of Pollution
Pigovian tax
D1
D2
Q2
Q1
Quantity of Pollution
A2
]4':("(P45%<4"/('"=D(':*(.#4$*(%;(.%88&'4%/(#*-"4/9(&/$:"/5*>("/>(':*(@&"/'4'0(%;
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Price of Pollution
Supply of
pollution permits
P1
P2
D1
D2
Q
Quantity of Pollution
112
"2
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10-7
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1E2
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1L2
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10-8
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10-9
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H2
3($%--%/(#*:%&#$*(9:("(8%%6(';"'(9:(#9<"5(7&'(/%'(*4$5&6"75*2((3/(*4"-.5*(9:(=9:;(9/(';*
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"2
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12-3
1[2
112
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$2
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"2
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7<-<'2
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"2
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</(</$%-*(F_1[[9[[[I(`(1Q(.*#$*/'2(
V%#('5*(.#%:#*66<4*('"E(606'*-9('5*(-"#:</"7('"E(#"'*("6(</$%-*(#<6*6(=#%_Q[9[[[('%(_1[[9[[[(<6('5*(</$#*"6*(</('"E*6(F_1Q9[[[I(8<4<8*8(G0('5*(</$#*"6*
</(</$%-*(F_Q[9[[[I(`(J[(.*#$*/'2((>5*(-"#:</"7('"E(#"'*("6(</$%-*(#<6*6(=#%!"#$%&#'()#"$*(+(,%-."/0
12-4
_1[[9[[[('%(_B[[9[[[(<6('5*(</$#*"6*(</('"E*6(F_JQ9[[[I(8<4<8*8(G0('5*(</$#*"6*
</(</$%-*(F_1[[9[[[I(`(JQ(.*#$*/'2(
$2
Y/('5*(.#%.%#'<%/"7('"E(606'*-9('5*("4*#":*('"E(#"'*(*O&"76('5*(-"#:</"7('"E(#"'*2(
Y/('5*(#*:#*66<4*('"E(606'*-9('5*(-"#:</"7('"E(#"'*(<6(7*66('5"/('5*("4*#":*('"E
#"'*("/8(G%'5('"E(#"'*6(8*$7</*("6(</$%-*(#<6*62((Y/('5*(.#%:#*66<4*('"E(606'*-9
'5*(-"#:</"7('"E(#"'*(<6(:#*"'*#('5"/('5*("4*#":*('"E(#"'*("/8(G%'5('"E(#"'*6(#<6*
"6(</$%-*(#<6*62((>5*(-"#:</"7('"E(#"'*(<6(#*7*4"/'('%(6%-*%/*(8*$<8</:(;5*'5*#
'%("$$*.'("(X%G('5"'(."06(67<:5'70(-%#*('5"/(5*#($&##*/'(X%G9(6</$*(<'('*776(5*#(5%;
-&$5(%=('5*(*E'#"(</$%-*(65*M77(L**.("='*#('"E*62((V%#(X&8:</:('5*(4*#'<$"7(*O&<'0
%=('5*('"E(606'*-9('5*("4*#":*('"E(#"'*(<6(#*7*4"/'9(6</$*(4*#'<$"7(*O&<'0(6&::*6'6
'5"'(.*%.7*(;<'5("(:#*"'*#("G<7<'0('%(."0(65%&78(."0("(7"#:*#("-%&/'2
1B2
>5*(*==<$<*/$0(X&6'<=<$"'<%/(=%#('"E</:($%/6&-.'<%/(#"'5*#('5"/(</$%-*(<6('5"'('"E</:
</$%-*(8<6$%&#":*6(6"4</:2((Y=('5*(C/<'*8(D'"'*6(;*#*('%("8%.'("($%/6&-.'<%/('"E9('5*
C2D2('"E(606'*-(;%&78(G*$%-*(7*66(.#%:#*66<4*(G*$"&6*('5*(.%%#(6.*/8("(:#*"'*#
.#%.%#'<%/(%=('5*<#(</$%-*('5"/('5*(#<$52((!%;*4*#9('"E(#"'*6($%&78(G*(-%8<=<*8(%#
8*8&$'<%/6(</$#*"6*8('%(-"L*('5*('"E(-%#*(.#%:#*66<4*2
1J2
>5*(7*:"7(8<4<6<%/(%=(6%$<"7(</6&#"/$*('"E*69(6&$5('5"'(5"7=('5*('"E(<6(."<8(G0(*-.7%0*#6
"/8(5"7=(G0(*-.7%0**69(8%*6/M'(</8<$"'*('5*('#&*(</$<8*/$*(%=('5*6*('"E*62((R6(;<'5("77
'"E*69('5*(</$<8*/$*(%=(6%$<"7(</6&#"/$*('"E*6(8*.*/86(/%'(%/(;5%(."06('5*('"E*6(G&'(%/
'5*(*7"6'<$<'<*6(%=(8*-"/8("/8(6&..70a</('5<6($"6*9('5*(*7"6'<$<'<*6(%=(8*-"/8("/8(6&..70
=%#(7"G%#2((D</$*('5*(6&..70(%=(7"G%#(<6(.#%G"G70(="<#70(</*7"6'<$9('5*(</$<8*/$*(%=(6%$<"7
</6&#"/$*('"E*6(="776(7"#:*70(%/(*-.7%0**62
1H2
W7<-</"'</:('5*('"E(8*8&$'<%/(=%#(-*"76(;%&78(#*8&$*('5*("-%&/'(%=(7&/$5*6('%(;5<$5
$%#.%#"'*(*E*$&'<4*6('"L*($7<*/'62(()&'('5*(</$<8*/$*(;%&78/M'(G*(G%#/*(*/'<#*70(G0
$%#.%#"'<%/69(G&'(</6'*"8(G0(*"'</:("/8(8#</L</:(*6'"G7<65-*/'6('5"'(;%&78(7%6*("
6&G6'"/'<"7($5&/L(%=('5*<#(G&6</*662
!"#$%&#'()#"$*(+(,%-."/0
12-5
!"#$%&'()*+((,"&(!-.%.(-/(0'-123%4-5
62&.%4-5.(/-'(7&84&9+((:5.9&'.
12
34*(#*5"'6%/746.(8*'9**/("(:6#-;7('%'"5(#*<*/&*=(.#%:6'=("/>('%'"5($%7'(67('4"'(.#%:6'
*?&"57('%'"5(#*<*/&*(-6/&7('%'"5($%7'72
@2
A/("$$%&/'"/'(9%&5>(/%'($%&/'('4*(%..%#'&/6'0($%7'(%:("5'*#/"'6<*(*-.5%0-*/'("7("/
"$$%&/'6/B($%7'2((A/(*C"-.5*(67(B6<*/(6/('4*('*C'=(6/(946$4(!*5*/(#&/7("($%%D6*
8&76/*77=(8&'(74*($%&5>(6/7'*">(9%#D("7("($%-.&'*#(.#%B#"--*#2(()*$"&7*(74*;7
9%#D6/B(6/(4*#($%%D6*(:"$'%#0=(74*(B6<*7(&.('4*(%..%#'&/6'0('%(*"#/(E1FF(.*#(4%&#("7("
$%-.&'*#(.#%B#"--*#2((34*("$$%&/'"/'(6B/%#*7('467(%..%#'&/6'0($%7'(8*$"&7*(/%(-%/*0
:5%9(%$$&#72(()&'('4*($%7'(67(#*5*<"/'('%(!*5*/;7(>*$676%/('%(#&/('4*($%%D6*(:"$'%#02
G2
3%'"5($%7'($%/767'7(%:("55('4*($%7'7(/**>*>('%(.#%>&$*("(B6<*/(?&"/'6'0(%:(%&'.&'2((H'
6/$5&>*7(:6C*>($%7'7("/>(<"#6"85*($%7'72((A<*#"B*('%'"5($%7'(67('4*($%7'(%:("('0.6$"5(&/6'
%:(%&'.&'("/>(67(*?&"5('%('%'"5($%7'(>6<6>*>(80('4*(?&"/'6'0(.#%>&$*>2((I"#B6/"5($%7'(67
'4*($%7'(%:(.#%>&$6/B("/(">>6'6%/"5(&/6'(%:(%&'.&'("/>(67(*?&"5('%('4*($4"/B*(6/('%'"5($%7'
>6<6>*>(80('4*($4"/B*(6/(?&"/'6'02((A/(">>6'6%/"5(#*5"'6%/(8*'9**/("<*#"B*('%'"5($%7'
"/>(-"#B6/"5($%7'(67('4"'(94*/*<*#(-"#B6/"5($%7'(67(5*77('4"/("<*#"B*('%'"5($%7'=("<*#"B*
'%'"5($%7'(67(>*$56/6/BJ(94*/*<*#(-"#B6/"5($%7'(67(B#*"'*#('4"/("<*#"B*('%'"5($%7'=
"<*#"B*('%'"5($%7'(67(#676/B2
K2
L6B&#*(1GM1(74%97('4*(-"#B6/"5M$%7'($&#<*("/>('4*("<*#"B*M'%'"5M$%7'($&#<*(:%#("('0.6$"5
:6#-2((H'(4"7('4#**(-"6/(:*"'&#*7N((O1P(-"#B6/"5($%7'(67(#676/BJ(O@P("<*#"B*('%'"5($%7'(67(QM
74".*>J("/>(OGP(94*/*<*#(-"#B6/"5($%7'(67(5*77('4"/("<*#"B*('%'"5($%7'=("<*#"B*('%'"5
$%7'(67(>*$56/6/BJ(94*/*<*#(-"#B6/"5($%7'(67(B#*"'*#('4"/("<*#"B*('%'"5($%7'=("<*#"B*
'%'"5($%7'(67(#676/B2((I"#B6/"5($%7'(67(#676/B(8*$"&7*(6/('4*(74%#'(#&/('4*(:6#-(-&7'(46#*
">>6'6%/"5(5"8%#('%(.#%>&$*(-%#*(%&'.&'(96'4%&'(8*6/B("85*('%(8&0(">>6'6%/"5(*?&6.-*/'2(
34*("<*#"B*('%'"5($%7'($&#<*(67(QM74".*>(8*$"&7*('4*(:6#-(6/6'6"550(4"7(*$%/%-6*7(%:
7$"5*(6/(.#%>&$'6%/=(7.#*">6/B(%&'(:6C*>($%7'7(%<*#(">>6'6%/"5(&/6'7=(8&'("7(?&"/'6'0
6/$#*"7*7=(6'($%7'7(-%#*('%(6/$#*"7*(?&"/'6'0(:&#'4*#(8*$"&7*(7%-*(6-.%#'"/'(6/.&'(67
56-6'*>2((I"#B6/"5($%7'("/>("<*#"B*('%'"5($%7'(4"<*('4*(#*5"'6%/746.('4*0(>%(8*$"&7*
-"#B6/"5($%7'(.&557("<*#"B*('%'"5($%7'(6/('4*(7"-*(>6#*$'6%/2((34*(-"#B6/"5($%7'("/>
"<*#"B*('%'"5($%7'($&#<*7(6/'*#7*$'("'('4*(-6/6-&-(%:("<*#"B*('%'"5($%7'J('4"'(?&"/'6'0(67
'4*(*::6$6*/'(7$"5*2
!"#$%&#'()#"$*(+(,%-."/0
13-1
Marginal
cost
Costs
Average
total cost
Quantity
R2
H/('4*(5%/B(#&/=("(:6#-($"/(">S&7'('4*(:"$'%#7(%:(.#%>&$'6%/('4"'("#*(:6C*>(6/('4*(74%#'
#&/J(:%#(*C"-.5*=(6'($"/(6/$#*"7*('4*(76T*(%:(6'7(:"$'%#02((A7("(#*7&5'=('4*(5%/BM#&/
"<*#"B*M'%'"5M$%7'($&#<*(4"7("(-&$4(:5"''*#(QM74".*('4"/('4*(74%#'M#&/("<*#"B*M'%'"5M$%7'
$&#<*2((H/(">>6'6%/=('4*(5%/BM#&/($&#<*(56*7(8*5%9("55(%:('4*(74%#'M#&/($&#<*72
0'-;<&=.(#51(:$$<43#%4-5.+((:5.9&'.
12
"2(%..%#'&/6'0($%7'J(82("<*#"B*('%'"5($%7'J($2(:6C*>($%7'J(>2(<"#6"85*($%7'J(*2('%'"5($%7'J(
:2(-"#B6/"5($%7'2
@2
"2
34*(%..%#'&/6'0($%7'(%:(7%-*'46/B(67(94"'(-&7'(8*(:%#B%/*('%("$?&6#*(6'2
82
34*(%..%#'&/6'0($%7'(%:(#&//6/B('4*(4"#>9"#*(7'%#*(67(ERRF=FFF=($%/767'6/B(%:
ERFF=FFF('%(#*/'('4*(7'%#*("/>(8&0('4*(7'%$D("/>("(ERF=FFF(%..%#'&/6'0($%7'=
76/$*(0%&#("&/'(9%&5>(?&6'(4*#(S%8("7("/("$$%&/'"/'('%(#&/('4*(7'%#*2((U6/$*('4*
'%'"5(%..%#'&/6'0($%7'(%:(ERRF=FFF(*C$**>7(#*<*/&*(%:(ER1F=FFF=(0%&#("&/'
74%&5>/;'(%.*/('4*(7'%#*=("7(4*#(.#%:6'(9%&5>(8*(/*B"'6<*MM74*(9%&5>(5%7*
-%/*02
"2
U6/$*(0%&;>(4"<*('%(."0(:%#(#%%-("/>(8%"#>(94*'4*#(0%&(9*/'('%($%55*B*(%#(/%'=
'4"'(.%#'6%/(%:(0%&#($%55*B*(."0-*/'(67(/%'("/(%..%#'&/6'0($%7'2
82
34*(*C.56$6'(%..%#'&/6'0($%7'(67('4*($%7'(%:('&6'6%/2
$2
A/(6-.56$6'(%..%#'&/6'0($%7'(67('4*($%7'(%:(0%&#('6-*2((V%&($%&5>(9%#D("'("(S%8
:%#(."0(#"'4*#('4"/("''*/>($%55*B*2((34*(9"B*7(0%&(B6<*(&.(#*.#*7*/'("/
%..%#'&/6'0($%7'(%:("''*/>6/B($%55*B*2
G2
!"#$%&#'()#"$*(+(,%-."/0
13-2
"2
34*(:%55%96/B('"85*(74%97('4*(-"#B6/"5(.#%>&$'(%:(*"$4(4%&#(7.*/'(:6746/BN
((((((((!%&#7
F
(((((((I"#B6/"5
L6C*> (((((((W"#6"85* ((((((((((3%'"5
((((((((X#%>&$' ((((((((((,%7' ((((((((((,%7' (((((((((((,%7'
((((((((((L674
(F
1F
(F
1F
1F
(R
1R
1F
1F
@F
1F
1R
@R
1F
@F
GF
1F
@R
GR
1F
1
1F
(Y
1Y
(Z
@K
@Y
GF
(K
(@
82
L6B&#*(1GM@(B#".47('4*(:674*#-"/;7(.#%>&$'6%/(:&/$'6%/2((34*(.#%>&$'6%/
:&/$'6%/(8*$%-*7(:5"''*#("7('4*(/&-8*#(%:(4%&#7(7.*/'(:6746/B(6/$#*"7*7=
655&7'#"'6/B(>6-6/6746/B(-"#B6/"5(.#%>&$'2
Quantity of Fish
K2
30
25
20
15
10
5
0
0
$2
2
3
4
5
Hours Spent Fishing
34*('"85*(74%97('4*(:6C*>($%7'=(<"#6"85*($%7'=("/>('%'"5($%7'(%:(:6746/B2((L6B&#*
1GMG(74%97('4*(:674*#-"/;7('%'"5M$%7'($&#<*2((H'(75%.*7(&.(8*$"&7*($"'$46/B
">>6'6%/"5(:674('"D*7(">>6'6%/"5('6-*2((34*($&#<*(67($%/<*C(8*$"&7*('4*#*("#*
>6-6/6746/B(#*'&#/7('%(:6746/B('6-*MM*"$4(">>6'6%/"5(4%&#(7.*/'(:6746/B(06*5>7
:*9*#(">>6'6%/"5(:6742
!"#$%&#'()#"$*(+(,%-."/0
13-3
Total Cost of Fishing
35
30
25
20
15
10
5
0
0
10
20
30
Quantity of Fish
40
R2
L6C*>($%7'7(6/$5&>*('4*($%7'(%:(%9/6/B(%#(#*/'6/B("($"#('%(>*56<*#('4*(8"B*57("/>('4*($%7'
%:("><*#'676/BJ('4*0;#*(:6C*>($%7'7(8*$"&7*('4*0(>%/;'(<"#0(96'4(%&'.&'2((W"#6"85*($%7'7
6/$5&>*('4*($%7'(%:('4*(8"B*57("/>(B"7(:%#('4*($"#=(76/$*('4%7*($%7'7(9655(6/$#*"7*("7
%&'.&'(6/$#*"7*72
Z2
"2
34*(:6C*>($%7'(67(GFF=(76/$*(:6C*>($%7'(*?&"57('%'"5($%7'(-6/&7(<"#6"85*($%7'2
82
3,
W,
GFF
((F
GRF
(RF
I,
RF
KF
@
G\F
(\F
GF
K@F
1@F
GF
KRF
1RF
K\F
1\F
RKF
@KF
KF
RF
I"#B6/"5($%7'(*?&"57('4*($4"/B*(6/('%'"5($%7'(%#('4*($4"/B*(6/(<"#6"85*($%7'2(
34"';7(8*$"&7*('%'"5($%7'(*?&"57(<"#6"85*($%7'(.5&7(:6C*>($%7'("/>(:6C*>($%7'
>%*7/;'($4"/B*("7('4*(?&"/'6'0($4"/B*72((U%("7(?&"/'6'0(6/$#*"7*7=('4*(6/$#*"7*(6/
'%'"5($%7'(*?&"57('4*(6/$#*"7*(6/(<"#6"85*($%7'("/>(8%'4("#*(*?&"5('%(-"#B6/"5
$%7'2
!"#$%&#'()#"$*(+(,%-."/0
13-4
"2
34*(:6C*>($%7'(%:(7*''6/B(&.('4*(5*-%/">*(7'"/>(67(E@FF2((34*(<"#6"85*($%7'(.*#
$&.(67(RF($*/'72(
82
34*(:%55%96/B('"85*(74%97('%'"5($%7'=("<*#"B*('%'"5($%7'=("/>(-"#B6/"5($%7'2(
34*7*("#*(.5%''*>(6/(L6B&#*(1GMK2
300
Total cost
250
200
Costs
]2
150
100
50
Average total cost
Marginal cost
0 1 2 3 4 5 6 7 8 9 10
Quantity of Lemonade
!"#$%&#'()#"$*(+(,%-."/0
13-5
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[
F
1
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[
W,
3,
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((F
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(1F
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%&'.&'(67("8%<*(K=("7("<*#"B*('%'"5($%7'(67(#676/B2((34*(-"#B6/"5($%7'($&#<*(67
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"59"07(6/$#*"76/B2
40
Marginal cost
35
30
Costs
\2
Average total cost
25
Average variable cost
20
15
10
5
0
0
3 4 5 6
Quantity of Juice
!"#$%&#'()#"$*(+(,%-."/0
13-7
1F2
34*(:%55%96/B('"85*(74%97(?&"/'6'0(O[P=('%'"5($%7'(O3,P=("/>("<*#"B*('%'"5($%7'(OA3,P
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L6#-()(4"7(>67*$%/%-6*7(%:(7$"5*(76/$*("<*#"B*('%'"5($%7'(#67*7("7(%&'.&'(#67*72
L6#-(,(4"7(*$%/%-6*7(%:(7$"5*(:%#(%&'.&'(:#%-(1('%(G=('4*/(>67*$%/%-6*7(%:(7$"5*(:%#
B#*"'*#(5*<*57(%:(%&'.&'2
!"#$%&#'()#"$*(+(,%-."/0
13-8
!"#$%&'()*+((,-'./(-0(!1.$&%-%-2&(3#'4&%/
56&/%-10/(71'(8&2-&9+((:0/9&'/
12
3($%-.*'4'45*(64#-(47("(64#-(4/("(-"#8*'(4/(9:4$:;((<1=(':*#*("#*(-"/0(>&0*#7("/?(-"/0
7*@@*#7(4/(':*(-"#8*'A(<B=(':*(C%%?7(%66*#*?(>0(':*(5"#4%&7(7*@@*#7("#*(@"#C*@0(':*(7"-*A
"/?(<D=(&7&"@@0(64#-7($"/(6#**@0(*/'*#(%#(*E4'(':*(-"#8*'2
B2
F4C&#*(1GH1(7:%97(':*($%7'($&#5*7(6%#("('0.4$"@(64#-2((F%#("(C45*/(.#4$*(<7&$:("7(I =J
':*(@*5*@(%6(%&'.&'(':"'(-"E4-4K*7(.#%64'(47(':*(%&'.&'(9:*#*(-"#C4/"@($%7'(*L&"@7(.#4$*
<M =J("7(@%/C("7(.#4$*(47(C#*"'*#(':"/("5*#"C*(5"#4">@*($%7'("'(':"'(.%4/'(<4/(':*(7:%#'
#&/=J(%#(C#*"'*#(':"/("5*#"C*('%'"@($%7'(<4/(':*(@%/C(#&/=2
Price, Costs
Marginal cost
Average total cost
P*
Average variable cost
Q*
Quantity
D2
3(64#-(94@@(7:&'(?%9/('*-.%#"#4@0(46(':*(#*5*/&*(4'(9%&@?(C*'(6#%-(.#%?&$4/C(47(@*77
':"/(':*(5"#4">@*($%7'7(%6(.#%?&$'4%/2((N:47(%$$&#7(46(.#4$*(47(@*77(':"/("5*#"C*(5"#4">@*
$%7'2
G2
3(64#-(94@@(*E4'("(-"#8*'(46(':*(#*5*/&*(4'(9%&@?(C*'(46(4'(7'"0*?(4/(>&74/*77(47(@*77(':"/
4'7('%'"@($%7'2((N:47(%$$&#7(46(.#4$*(47(@*77(':"/("5*#"C*('%'"@($%7'2
O2
3(64#-P7(.#4$*(*L&"@7(-"#C4/"@($%7'(4/(>%':(':*(7:%#'(#&/("/?(':*(@%/C(#&/2((Q/(>%':(':*
7:%#'(#&/("/?(':*(@%/C(#&/J(.#4$*(*L&"@7(-"#C4/"@(#*5*/&*2((N:*(64#-(7:%&@?(4/$#*"7*
%&'.&'("7(@%/C("7(-"#C4/"@(#*5*/&*(*E$**?7(-"#C4/"@($%7'J("/?(#*?&$*(%&'.&'(46
!"#$%&#'()#"$*(+(,%-."/0
14-1
-"#C4/"@(#*5*/&*(47(@*77(':"/(-"#C4/"@($%7'2((I#%64'7("#*(-"E4-4K*?(9:*/(-"#C4/"@
#*5*/&*(*L&"@7(-"#C4/"@($%7'2
R2
N:*(64#-P7(.#4$*(*L&"@7(':*(-4/4-&-(%6("5*#"C*('%'"@($%7'(%/@0(4/(':*(@%/C(#&/2((Q/(':*
7:%#'(#&/J(.#4$*(-"0(>*(C#*"'*#(':"/("5*#"C*('%'"@($%7'J(4/(9:4$:($"7*(':*(64#-(47
-"84/C(.#%64'7J(%#(.#4$*(-"0(>*(@*77(':"/("5*#"C*('%'"@($%7'J(4/(9:4$:($"7*(':*(64#-(47
-"84/C(@%77*72(()&'(':*(74'&"'4%/(47(?466*#*/'(4/(':*(@%/C(#&/2((Q6(64#-7("#*(-"84/C
.#%64'7J(%':*#(64#-7(94@@(*/'*#(':*(4/?&7'#0J(9:4$:(94@@(@%9*#(':*(.#4$*(%6(':*(C%%?2((Q6
64#-7("#*(-"84/C(@%77*7J(':*0(94@@(*E4'(':*(4/?&7'#0J(9:4$:(94@@(#"47*(':*(.#4$*(%6(':*
C%%?2((S/'#0(%#(*E4'($%/'4/&*(&/'4@(64#-7("#*(-"84/C(/*4':*#(.#%64'7(/%#(@%77*72((3'(':"'
.%4/'J(.#4$*(*L&"@7("5*#"C*('%'"@($%7'2
;'1<=&./(#0>(:$$=-?#%-10/+((:0/9&'/
12
3($%-.*'4'45*(-"#8*'(47(%/*(4/(9:4$:;((<1=(':*#*("#*(-"/0(>&0*#7("/?(-"/0(7*@@*#7(4/
':*(-"#8*'A(<B=(':*(C%%?7(%66*#*?(>0(':*(5"#4%&7(7*@@*#7("#*(@"#C*@0(':*(7"-*A("/?(<D=
&7&"@@0(64#-7($"/(6#**@0(*/'*#(%#(*E4'(':*(-"#8*'2((T6(':*7*(C%%?7J(>%''@*?(9"'*#(47
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':*#*P7(%/@0(%/*(7*@@*#2((,%@"("/?(>**#("#*/P'(.*#6*$'@0($%-.*'4'45*(>*$"&7*(*5*#0(>#"/?
47(7@4C:'@0(?466*#*/'2
B2
U4/$*("(/*9($&7'%-*#(47(%66*#4/C('%(."0(VDWW(6%#(%/*(?%7*J(-"#C4/"@(#*5*/&*(>*'9**/
BWW("/?(BW1(?%7*7(47(VDWW2((U%(9*(-&7'(64/?(%&'(46(-"#C4/"@($%7'(47(C#*"'*#(':"/(%#(@*77
':"/(VDWW2((N%(?%(':47J($"@$&@"'*('%'"@($%7'(6%#(BWW(?%7*7("/?(BW1(?%7*7J("/?($"@$&@"'*
':*(4/$#*"7*(4/('%'"@($%7'2((X&@'4.@04/C(L&"/'4'0(>0("5*#"C*('%'"@($%7'J(9*(64/?(':"'('%'"@
$%7'(#47*7(6#%-(VGWJWWW('%(VGWJGW1J(7%(-"#C4/"@($%7'(47(VGW12((U%(0%&#(#%%--"'*
7:%&@?(/%'(-"8*(':*("??4'4%/"@(?%7*2
D2
"2
Y*-*->*#4/C(':"'(.#4$*(*L&"@7(-"#C4/"@($%7'(4/(*L&4@4>#4&-J(9*(8/%9(':*
-"#C4/"@($%7'(-&7'(>*(DW($*/'7J(74/$*(':"'P7(':*(.#4$*2
>2
N:*(4/?&7'#0(47(/%'(4/(@%/CH#&/(*L&4@4>#4&-(74/$*(.#4$*(*E$**?7("5*#"C*('%'"@
$%7'2
G2
T/$*(0%&P5*(%#?*#*?(':*(?4//*#J(4'7($%7'(47(7&/8J(7%(4'(?%*7/P'(#*.#*7*/'("/(%..%#'&/4'0
$%7'2((37("(#*7&@'J(':*($%7'(%6(':*(?4//*#(7:%&@?/P'(4/6@&*/$*(0%&#(?*$474%/(">%&'(7'&664/C
0%&#7*@62
O2
"2
F4C&#*(1GHB(7:%97(':*(7:%#'H#&/(*66*$'(%6(?*$@4/4/C(?*-"/?(6%#(>**62((N:*(7:46'
%6(':*(4/?&7'#0(?*-"/?($&#5*(6#%-(Z ('%(Z (#*?&$*7(':*(L&"/'4'0(6#%-(M ('%(M
"/?(#*?&$*7(':*(.#4$*(6#%-(I ('%(I 2((N:47("66*$'7(':*(64#-J(#*?&$4/C(4'7(L&"/'4'0
6#%-(L ('%(L 2(()*6%#*(':*(?*$@4/*(4/(':*(.#4$*J(':*(64#-(9"7(-"84/C(K*#%(.#%64'7A
"6'*#9"#?7J(.#%64'7("#*(/*C"'45*J("7("5*#"C*('%'"@($%7'(*E$**?7(.#4$*2
!"#$%&#'()#"$*(+(,%-."/0
14-2
Industry
Firm
Marginal
cost
Price, Costs, Revenue
Price
Supply
P1
P2
D2
Average
total
cost
D1
Q2 Q1
Quantity
F4C&#*(1GHD(7:%97(':*(@%/CH#&/(*66*$'(%6(?*$@4/4/C(?*-"/?(6%#(>**62((U4/$*
64#-7(9*#*(@%74/C(-%/*0(4/(':*(7:%#'(#&/J(7%-*(64#-7(@*"5*(':*(4/?&7'#02((N:47
7:46'7(':*(7&..@0($&#5*(6#%-(U ('%(U 2((N:*(7:46'(%6(':*(7&..@0($&#5*(47([&7'
*/%&C:('%(4/$#*"7*(':*(.#4$*(>"$8('%(4'7(%#4C4/"@(@*5*@J(I 2((37("(#*7&@'J(4/?&7'#0
%&'.&'(6"@@7(7'4@@(6&#':*#J('%(M 2((F%#(64#-7(':"'(#*-"4/(4/(':*(4/?&7'#0J(':*(#47*(4/
':*(.#4$*('%(I (#*'&#/7(':*-('%(':*4#(%#4C4/"@(74'&"'4%/J(.#%?&$4/C(L&"/'4'0(L ("/?
*"#/4/C(K*#%(.#%64'72
Price
Industry
S3
Firm
S1
>2
P1
P2
D2
Q3 Q2 Q1
Quantity
R2
q2 q1
Quantity
Marginal
cost
Average
total
cost
D1
q2 q1
Quantity
F4C&#*(1GHG(7:%97(':"'("@':%&C:(:4C:(.#4$*7($"&7*("/(4/?&7'#0('%(*E."/?J(*/'#0(4/'%(':*
4/?&7'#0(*5*/'&"@@0(#*'&#/7(.#4$*7('%(':*(.%4/'(%6(-4/4-&-("5*#"C*('%'"@($%7'2((Q/(':*
64C&#*J(':*(4/?&7'#0(47(%#4C4/"@@0(4/(@%/CH#&/(*L&4@4>#4&-2((N:*(4/?&7'#0(.#%?&$*7(%&'.&'
M J(9:*#*(7&..@0($&#5*(U (4/'*#7*$'7(?*-"/?($&#5*(Z J("/?(':*(.#4$*(47(I 2((3'(':47
!"#$%&#'()#"$*(+(,%-."/0
14-3
.%4/'(':*('0.4$"@(64#-(.#%?&$*7(%&'.&'(L 2((U4/$*(.#4$*(*L&"@7("5*#"C*('%'"@($%7'("'(':"'
.%4/'J(':*(64#-(-"8*7(K*#%(*$%/%-4$(.#%64'2
\%9(7&..%7*("/(4/$#*"7*(4/(?*-"/?(%$$&#7J(94':(':*(?*-"/?($&#5*(7:46'4/C('%(Z 2(
N:47($"&7*7(]7'#%/C(.#4$*7](4/(':*(4/?&7'#0J("7(':*(.#4$*(#47*7('%(I 2((Q'("@7%($"&7*7(':*
4/?&7'#0('%(4/$#*"7*(%&'.&'('%(M 2((^4':(':*(:4C:*#(.#4$*J(':*('0.4$"@(64#-(4/$#*"7*7(4'7
%&'.&'(6#%-(L ('%(L J("/?(/%9(-"8*7(.%74'45*(.#%64'7J(74/$*(.#4$*(*E$**?7("5*#"C*('%'"@
$%7'2
!%9*5*#J(':*(.%74'45*(.#%64'7(':"'(64#-7(*"#/(*/$%&#"C*(%':*#(64#-7('%(*/'*#(':*
4/?&7'#02((N:*4#(*/'#0J(]"/(*E."/74%/(4/("/(4/?&7'#0J](@*"?7(':*(7&..@0($&#5*('%(7:46'('%
U 2((N:*(/*9(*L&4@4>#4&-(#*?&$*7(':*(.#4$*(>"$8('%(I J(]>#4/C4/C("/(*/?('%(:4C:(.#4$*7
"/?(-"/&6"$'&#*#7P(.#%7.*#4'0J](74/$*(/%9(64#-7(.#%?&$*(L ("/?(*"#/(K*#%(.#%64'("C"4/2(
N:*(%/@0(@%/CH@"7'4/C(*66*$'(47(':"'(4/?&7'#0(%&'.&'(47(M J("(:4C:*#(@*5*@(':"/(%#4C4/"@@02
Marginal
cost Average
total cost
P2
P1
S1
S3
D1 D2
q1 q2
Quantity
_2
Industry
Price
Firm
Q1 Q2 Q3
Quantity
N:*(#47*(4/(':*(.#4$*(%6(.*'#%@*&-(4/$#*"7*7(.#%?&$'4%/($%7'7(6%#(4/?454?&"@(64#-7("/?
':&7(7:46'7(':*(4/?&7'#0(7&..@0($&#5*(&.J("7(7:%9/(4/(F4C&#*(1GHO2((N:*('0.4$"@(64#-P7
4/4'4"@(-"#C4/"@H$%7'($&#5*(47(X, ("/?(4'7("5*#"C*H'%'"@H$%7'($&#5*(47(3N, 2((Q/(':*
4/4'4"@(*L&4@4>#4&-J(':*(4/?&7'#0(7&..@0($&#5*J(U J(4/'*#7*$'7(':*(?*-"/?($&#5*("'(.#4$*
I J(9:4$:(47(*L&"@('%(':*(-4/4-&-("5*#"C*('%'"@($%7'(%6(':*('0.4$"@(64#-2((N:&7(':*
'0.4$"@(64#-(*"#/7(/%(*$%/%-4$(.#%64'2
N:*(4/$#*"7*(4/(':*(.#4$*(%6(%4@(7:46'7(':*('0.4$"@(64#-P7($%7'($&#5*7(&.('%(X, ("/?
3N, J("/?(7:46'7(':*(4/?&7'#0(7&..@0($&#5*(&.('%(U 2((N:*(*L&4@4>#4&-(.#4$*(#47*7(6#%I ('%(I J(>&'(':*(.#4$*(?%*7/P'(4/$#*"7*(>0("7(-&$:("7(':*(4/$#*"7*(4/(-"#C4/"@($%7'(6%#
':*(64#-2((37("(#*7&@'J(.#4$*(47(@*77(':"/("5*#"C*('%'"@($%7'(6%#(':*(64#-J(7%(.#%64'7("#*
/*C"'45*2
Q/(':*(@%/C(#&/J(':*(/*C"'45*(.#%64'7(@*"?(7%-*(64#-7('%(*E4'(':*(4/?&7'#02((37(':*0(?%
7%J(':*(4/?&7'#0(7&..@0($&#5*(7:46'7('%(':*(@*6'2((N:47($%/'4/&*7(&/'4@(':*(.#4$*(#47*7('%
*L&"@(':*(-4/4-&-(.%4/'(%/(':*(64#-P7("5*#"C*H'%'"@H$%7'($&#5*2((N:*(@%/CH#&/
!"#$%&#'()#"$*(+(,%-."/0
14-4
*L&4@4>#4&-(%$$&#7(94':(7&..@0($&#5*(U J(*L&4@4>#4&-(.#4$*(I J(4/?&7'#0(%&'.&'(M J("/?

64#-P7(%&'.&'(L 2((N:&7J(4/(':*(@%/C(#&/J(.#%64'7("#*(K*#%("C"4/("/?(':*#*("#*(6*9*#(64#-7
4/(':*(4/?&7'#02
Firm
Industry
S3
S2
S1
MC1
ATC2
ATC1
P3
P2
P1
Price
Price, Costs
MC2
Demand
q2 q3 q1
Quantity
"2
F4C&#*(1GHR(4@@&7'#"'*7(':*(74'&"'4%/(4/(':*(a2U2('*E'4@*(4/?&7'#02((^4':(/%
4/'*#/"'4%/"@('#"?*J(':*(-"#8*'(47(4/(@%/CH#&/(*L&4@4>#4&-2((U&..@0(4/'*#7*$'7
?*-"/?("'(L&"/'4'0(M ("/?(.#4$*(VDWJ(94':("('0.4$"@(64#-(.#%?&$4/C(%&'.&'(L 2
Firm
Industry
Supply
Average
total cost
$30
$25
Price
Marginal
cost
Price, Costs
`2
Q3 Q 2 Q 1
Quantity
Demand
q2 q1
Q1
imports
Quantity
>2
Quantity
N:*(*66*$'(%6(4-.%#'7("'(VBO(47(':"'(':*(-"#8*'(7&..@0($&#5*(6%@@%97(':*(%@?
7&..@0($&#5*(&.('%("(.#4$*(%6(VBOJ(':*/(>*$%-*7(:%#4K%/'"@("'(':"'(.#4$*2((37("
#*7&@'J(?*-"/?(*E$**?7(?%-*7'4$(7&..@0J(7%(':*($%&/'#0(4-.%#'7('*E'4@*7(6#%%':*#($%&/'#4*72((N:*('0.4$"@(?%-*7'4$(64#-(/%9(#*?&$*7(4'7(%&'.&'(6#%-(L ('%(L J
4/$&##4/C(@%77*7J(74/$*(':*(@"#C*(64E*?($%7'7(4-.@0(':"'("5*#"C*('%'"@($%7'(94@@(>*
-&$:(:4C:*#(':"/(':*(.#4$*2
!"#$%&#'()#"$*(+(,%-."/0
14-5
b2
$2
Q/(':*(@%/C(#&/J(?%-*7'4$(64#-7(94@@(>*(&/">@*('%($%-.*'*(94':(6%#*4C/(64#-7
>*$"&7*(':*4#($%7'7("#*('%%(:4C:2((3@@(':*(?%-*7'4$(64#-7(94@@(*E4'(':*(4/?&7'#0
"/?(%':*#($%&/'#4*7(94@@(7&..@0(*/%&C:('%(7"'4760(':*(*/'4#*(?%-*7'4$(?*-"/?2
"2
F4C&#*(1GH_(7:%97(':*($&##*/'(*L&4@4>#4&-(4/(':*(-"#8*'(6%#(.#*'K*@72((N:*
7&..@0($&#5*J(U J(4/'*#7*$'7(':*(?*-"/?($&#5*("'(.#4$*(I 2((S"$:(7'"/?(.#%?&$*7
L&"/'4'0(L (%6(.#*'K*@7J(7%(':*('%'"@(/&->*#(%6(.#*'K*@7(.#%?&$*?(47(1JWWW(E(L 2(
U'"/?7(*"#/(K*#%(.#%64'J(74/$*(.#4$*(*L&"@7("5*#"C*('%'"@($%7'2
Firm
Industry
P2
ATC2
P1
S2
S1
Average
total cost
Price
Price, Costs
Marginal
cost
Demand
q1 q2
Quantity of Pretzels
1W2
800q2 1000q1
Quantity of Pretzels
>2
Q6(':*($4'0(C%5*#/-*/'(#*7'#4$'7(':*(/&->*#(%6(.#*'K*@(7'"/?7('%(`WWJ(':*(4/?&7'#0
7&..@0($&#5*(7:46'7('%(U 2((N:*(-"#8*'(.#4$*(#47*7('%(I J("/?(4/?454?&"@(64#-7
.#%?&$*(%&'.&'(L 2((Q/?&7'#0(%&'.&'(47(/%9(`WW(E(L 2((\%9(':*(.#4$*(*E$**?7
"5*#"C*('%'"@($%7'J(7%(*"$:(64#-(47(-"84/C("(.%74'45*(.#%64'2((^4':%&'(#*7'#4$'4%/7
%/(':*(-"#8*'J(':47(9%&@?(4/?&$*(%':*#(64#-7('%(*/'*#(':*(-"#8*'J(>&'(':*0($"/P'J
74/$*(':*(C%5*#/-*/'(:"7(@4-4'*?(':*(/&->*#(%6(@4$*/7*72
$2
N:*($4'0($%&@?($:"#C*("(@4$*/7*(6**(6%#(':*(@4$*/7*72((U4/$*(4'P7("(@&-.H7&-(6**
6%#(':*(@4$*/7*J(/%'(>"7*?(%/(':*(L&"/'4'0(%6(7"@*7J(7&$:("('"E(:"7(/%(*66*$'(%/
-"#C4/"@($%7'J(7%(9%/P'("66*$'(':*(64#-P7(%&'.&'2((Q'(94@@J(:%9*5*#J(#*?&$*(':*
64#-P7(.#%64'72((37(@%/C("7(':*(64#-(47(@*6'(94':("(K*#%(%#(.%74'45*(.#%64'J(4'(94@@
$%/'4/&*('%(%.*#"'*2((U%(':*(@4$*/7*(6**(':"'(>#4/C7(':*(-%7'(-%/*0('%(':*($4'0(47
'%($:"#C*(*"$:(64#-(':*("-%&/'(<I (H(3N, =L J(':*("-%&/'(%6(':*(64#-P7(.#%64'2
"2
F4C&#*(1GH`(4@@&7'#"'*7(':*(C%@?(-"#8*'(<4/?&7'#0=("/?("(#*.#*7*/'"'45*(C%@?(-4/*
<64#-=2((N:*(?*-"/?($&#5*J(Z J(4/'*#7*$'7(':*(7&..@0($&#5*("'(4/?&7'#0(L&"/'4'0
M ("/?(.#4$*(I 2((U4/$*(':*(4/?&7'#0(47(4/(@%/CH#&/(*L&4@4>#4&-J(':*(.#4$*(*L&"@7
':*(-4/4-&-(.%4/'(%/(':*(#*.#*7*/'"'45*(64#-P7("5*#"C*('%'"@($%7'($&#5*J(7%(':*
64#-(.#%?&$*7(%&'.&'(L ("/?(-"8*7(K*#%(.#%64'2
!"#$%&#'()#"$*(+(,%-."/0
14-6
Industry
Marginal
cost
Average
total cost
P2
P1
Supply
Price
Price, Costs
Firm
D2
D1
q1 q2
Quantity
>2
N:*(4/$#*"7*(4/([*9*@#0(?*-"/?(@*"?7('%("/(4/$#*"7*(4/(':*(?*-"/?(6%#(C%@?J
7:46'4/C(':*(?*-"/?($&#5*('%(Z 2((Q/(':*(7:%#'(#&/J(':*(.#4$*(#47*7('%(I J(4/?&7'#0
%&'.&'(#47*7('%(M J("/?(':*(#*.#*7*/'"'45*(64#-P7(%&'.&'(#47*7('%(L 2((U4/$*(.#4$*
/%9(*E$**?7("5*#"C*('%'"@($%7'J(':*(#*.#*7*/'"'45*(64#-(/%9(*"#/7(.%74'45*
.#%64'72
$2
U4/$*(C%@?(-4/*7("#*(*"#/4/C(.%74'45*(*$%/%-4$(.#%64'7J(%5*#('4-*(%':*#(64#-7
94@@(*/'*#(':*(4/?&7'#02((N:47(94@@(7:46'(':*(7&..@0($&#5*('%(':*(#4C:'J(#*?&$4/C
':*(.#4$*(>*@%9(I 2(()&'(4'P7(&/@48*@0(':"'(':*(.#4$*(94@@(6"@@("@@(':*(9"0(>"$8('%
I J(74/$*(C%@?(47(4/(7:%#'(7&..@02((,%7'7(6%#(/*9(64#-7("#*(@48*@0('%(>*(:4C:*#
':"/(6%#(%@?*#(64#-7J(74/$*(':*0P@@(:"5*('%(?47$%5*#(/*9(C%@?(7%&#$*72((U%(4'P7
@48*@0(':"'(':*(@%/CH#&/(7&..@0($&#5*(4/(':*(C%@?(4/?&7'#0(47(&.9"#?(7@%.4/C2(
N:"'(-*"/7(':*(@%/CH#&/(*L&4@4>#4&-(.#4$*(94@@(>*(:4C:*#(':"/(4'(9"7(4/4'4"@@02
"2
F4C&#*(1GHb(7:%97($%7'($&#5*7(6%#("(,"@46%#/4"(#*64/*#("/?("(/%/H,"@46%#/4"
#*64/*#2((U4/$*(':*(,"@46%#/4"(#*64/*#(:"7("$$*77('%(@%9*#H$%7'(%4@J(4'7($%7'7("#*
@%9*#2
California refiner
Other refiner
Marginal
cost
Marginal
cost
P*
Average
total cost
ATCc
Qc
Quantity
Average
total cost
Price, Costs
Price, Costs
112
Q1 Q2
Quantity
Q0
Quantity
!"#$%&#'()#"$*(+(,%-."/0
14-7
>2
Q/(@%/CH#&/(*L&4@4>#4&-J(':*(.#4$*(47(?*'*#-4/*?(>0(':*($%7'7(%6(/%/H,"@46%#/4"
#*64/*#7J(74/$*(,"@46%#/4"(#*64/*#7($"/P'(7&..@0(':*(*/'4#*(-"#8*'2((N:*(-"#8*'
.#4$*(94@@(*L&"@(':*(-4/4-&-("5*#"C*('%'"@($%7'(%6(':*(%':*#(#*64/*#7A(':*0(94@@
':&7(*"#/(K*#%(.#%64'72((U4/$*(,"@46%#/4"(#*64/*#7(:"5*(@%9*#($%7'7J(':*0(94@@(*"#/
.%74'45*(.#%64'7J(*L&"@('%(<I (H(3N, =(E(M 2
$2
c*7J(':*#*(47("(7&>74?0('%(,"@46%#/4"(#*64/*#7(':"'(47(/%'(."77*?(%/('%($%/7&-*#72(
N:*(7&>74?0("$$%&/'7(6%#(':*(@%/CH#&/(.#%64'7(%6(':*(,"@46%#/4"(#*64/*#72((Q'("#47*7
74-.@0(>*$"&7*(':*(%4@($"/P'(>*(*E.%#'*?2
!"#$%&#'()#"$*(+(,%-."/0
14-8
!"#$%&'()*+((,-.-$-/0
12&3%4-.3(5-'(6&74&8+((9.38&'3
3/(*4"-.5*(%6("(7%8*#/-*/'9$#*"'*:(-%/%.%50($%-*;(6#%-('<*(*4=;'*/$*(%6(."'*/'("/:
$%.0#=7<'(5">;2(()%'<("55%>(6=#-;(%#(=/:=8=:&"5;('%(?*(-%/%.%5=*;(6%#(*4'*/:*:(.*#=%:;
%6('=-*@1A(0*"#;(6%#(."'*/';B(6%#*8*#(6%#($%.0#=7<';2(()&'('<=;(-%/%.%50(.%>*#(=;
7%%:B(?*$"&;*(>='<%&'(='B(/%(%/*(>%&5:(>#='*("(?%%C(D?*$"&;*("/0%/*($%&5:(.#=/'
$%.=*;(%6(='B(;%('<*("&'<%#(>%&5:(7*'(/%(=/$%-*E("/:(/%(6=#-(>%&5:(=/8*;'(=/(#*;*"#$<
"/:(:*8*5%.-*/'('%(=/8*/'(/*>(.#%:&$';(%#(:#&7;(D;=/$*("/0(%'<*#($%-."/0($%&5:
.#%:&$*(%#(;*55('<*-B("/:('<*(6=#-(>%&5:(7*'(/%(.#%6='(6#%-(=';(=/8*;'-*/'E2((((((
F2
3/(=/:&;'#0(=;("(/"'&#"5(-%/%.%50(><*/("(;=/75*(6=#-($"/(;&..50("(7%%:(%#(;*#8=$*('%
"/(*/'=#*(-"#C*'("'("(;-"55*#($%;'('<"/($%&5:('>%(%#(-%#*(6=#-;2((3;("(-"#C*'(7#%>;(='
-"0(*8%58*(6#%-("(/"'&#"5(-%/%.%50('%("($%-.*'='=8*(-"#C*'2
G2
3(-%/%.%5=;'H;(-"#7=/"5(#*8*/&*(=;(5*;;('<"/('<*(.#=$*(%6(=';(.#%:&$'(?*$"&;*I((D1E(=';
:*-"/:($&#8*(=;('<*(-"#C*'(:*-"/:($&#8*B(;%(DFE('%(=/$#*";*('<*("-%&/'(;%5:B('<*
-%/%.%5=;'(-&;'(5%>*#('<*(.#=$*(%6(=';(7%%:(6%#(*8*#0(&/='(='(;*55;B(;%(DGE('<=;($&'(=/
.#=$*;(#*:&$*;(#*8*/&*(%/('<*(&/=';(='(>";("5#*":0(;*55=/72
J2
K=7&#*(1L91(;<%>;('<*(:*-"/:B(-"#7=/"59#*8*/&*B("/:(-"#7=/"59$%;'($&#8*;(6%#("
-%/%.%5=;'2((M<*(=/'*#;*$'=%/(%6('<*(-"#7=/"59#*8*/&*("/:(-"#7=/"59$%;'($&#8*;
:*'*#-=/*;('<*(.#%6='9-"4=-=N=/7(5*8*5(%6(%&'.&'B(O 2((M<*(:*-"/:($&#8*('<*/(;<%>;
'<*(.#%6='9-"4=-=N=/7(.#=$*B(P 2
Price, Cost, Revenue
12
Pm
Deadweight
loss
Marginal cost
Demand
Marginal revenue
Qm
Qc
Quantity
!"#$%&#'()#"$*(+(,%-."/0
15-1
L2
M<*(5*8*5(%6(%&'.&'('<"'(-"4=-=N*;('%'"5(;&#.5&;(=/(K=7&#*(1L91(=;(><*#*('<*(:*-"/:
$&#8*(=/'*#;*$';('<*(-"#7=/"59$%;'($&#8*B(O 2((M<*(:*":>*=7<'(5%;;(6#%-(-%/%.%50(=;
'<*('#="/7&5"#("#*"(?*'>**/(O ("/:(O ('<"'H;("?%8*('<*(-"#7=/"59$%;'($&#8*("/:(?*5%>
'<*(:*-"/:($&#8*2((Q'(#*.#*;*/';(:*":>*=7<'(5%;;(?*$"&;*(;%$=*'0(5%;*;('%'"5(;&#.5&;
?*$"&;*(%6(-%/%.%50(*R&"5('%('<*(8"5&*(%6('<*(7%%:B(-*";&#*:(?0('<*(:*-"/:($&#8*B
5*;;('<*($%;'(%6(.#%:&$'=%/B(7=8*/(?0('<*(-"#7=/"59$%;'($&#8*B(6%#('<*(R&"/'='=*;(O (9
O 2
S2
M<*(7%8*#/-*/'(<";('<*(.%>*#('%(#*7&5"'*(-*#7*#;(?*'>**/(6=#-;(?*$"&;*(%6("/'='#&;'
5">;2((K=#-;(-=7<'(>"/'('%(-*#7*('%(=/$#*";*(%.*#"'=/7(*66=$=*/$0("/:(#*:&$*($%;';B
;%-*'<=/7('<"'H;(7%%:(6%#(;%$=*'0B(%#('%(7"=/(-%/%.%50(.%>*#B(><=$<(=;(?":(6%#(;%$=*'02
A2
T<*/(#*7&5"'%#;('*55("(/"'&#"5(-%/%.%50('<"'(='(-&;'(;*'(.#=$*(*R&"5('%(-"#7=/"5($%;'B
'>%(.#%?5*-;("#=;*2((M<*(6=#;'(=;('<"'B(?*$"&;*("(/"'&#"5(-%/%.%50(<";("($%/;'"/'
-"#7=/"5($%;'('<"'H;(5*;;('<"/("8*#"7*($%;'B(;*''=/7(.#=$*(*R&"5('%(-"#7=/"5($%;'(-*"/;
'<"'('<*(.#=$*(=;(5*;;('<"/("8*#"7*($%;'B(;%('<*(6=#-(>=55(5%;*(-%/*02((M<*(6=#-(>%&5:
*4='('<*(=/:&;'#0(&/5*;;('<*(7%8*#/-*/'(;&?;=:=N*:(='B(?&'(7*''=/7(#*8*/&*(6%#(;&$<("
;&?;=:0(>%&5:($"&;*('<*(7%8*#/-*/'('%(#"=;*(%'<*#('"4*;B(=/$#*";=/7('<*=#(:*":>*=7<'
5%;;2((M<*(;*$%/:(.#%?5*-(=;('<"'(='(7=8*;('<*(-%/%.%50(/%(=/$*/'=8*('%(#*:&$*($%;';2
U2
V/*(*4"-.5*(%6(.#=$*(:=;$#=-=/"'=%/(=;(=/(.&?5=;<=/7(?%%C;2((P&?5=;<*#;($<"#7*("(-&$<
<=7<*#(.#=$*(6%#(<"#:?"$C(?%%C;('<"/(6%#(.".*#?"$C(?%%C;@6"#(<=7<*#('<"/('<*
:=66*#*/$*(=/(.#%:&$'=%/($%;';2((P&?5=;<*#;(:%('<=;(?*$"&;*(:=*9<"#:(6"/;(>=55(."0(-%#*
6%#("(<"#:?"$C(?%%C(><*/('<*(?%%C(=;(6=#;'(#*5*";*:2((M<%;*(><%(:%/H'(8"5&*('<*(?%%C
";(<=7<50(>=55(>"='(6%#('<*(.".*#?"$C(8*#;=%/('%($%-*(%&'2((M<*(.&?5=;<*#(-"C*;(7#*"'*#
.#%6='('<=;(>"0('<"/(=6(='($<"#7*:(W&;'(%/*(.#=$*2
3(;*$%/:(*4"-.5*(=;('<*(.#=$=/7(%6(-%8=*('=$C*';2((M<*"'*#;(7=8*(:=;$%&/';('%($<=5:#*/
"/:(;*/=%#($='=N*/;(?*$"&;*('<*0(<"8*("(5%>*#(>=55=/7/*;;('%(."0(6%#("('=$C*'2((,<"#7=/7
:=66*#*/'(.#=$*;(<*5.;('<*('<*"'*#(=/$#*";*(=';(.#%6='("?%8*(><"'(='(>%&5:(?*(=6(='($<"#7*:
W&;'(%/*(.#=$*2
:'-;/&<3(#.=(9$$/4>#%4-.3+((9.38&'3
12
3(6=#-H;(-"#7=/"5(#*8*/&*(=;('<*(=/$#*";*(=/(#*8*/&*(6#%-(.#%:&$=/7(%/*(-%#*(&/='(%6
'<*(7%%:2((3(-%/%.%5=;'H;(-"#7=/"5(#*8*/&*($"/(?*(/*7"'=8*(?*$"&;*('%(7*'(.&#$<";*#;
'%(?&0("/("::='=%/"5(&/='(%6('<*(7%%:B('<*(6=#-(-&;'(#*:&$*(=';(.#=$*(%/(!""(&/=';(%6('<*
7%%:2((M<*(6"$'('<"'(='(;*55;("(7#*"'*#(R&"/'='0(=/$#*";*;(#*8*/&*B(?&'('<*(:*$5=/*(=/(.#=$*
:*$#*";*;(#*8*/&*2((M<*(%8*#"55(*66*$'(:*.*/:;(%/('<*(*5";'=$='0(%6('<*(:*-"/:($&#8*2((Q6
'<*(:*-"/:($&#8*(=;(=/*5";'=$B(-"#7=/"5(#*8*/&*(>=55(?*(/*7"'=8*2
!"#$%&#'()#"$*(+(,%-."/0
15-2
3($%-.*'='=8*(6=#-(6"$*;("(-%#*(*5";'=$(:*-"/:($&#8*('<"/("(-%/%.%5=;'X(=/(6"$'B("
$%-.*'='=8*(6=#-(6"$*;("(.*#6*$'50(*5";'=$(:*-"/:($&#8*(;=/$*(='(=;("(.#=$*('"C*#2((M<*
5"#7*#(*5";'=$='0("#=;*;(><*/("(7%%:(<";(-"/0(.*#6*$'(;&?;'='&'*;2
G2
K=7&#*(1L9F(=55&;'#"'*;("(/"'&#"5(-%/%.%5=;'(;*''=/7(.#=$*B(P B(*R&"5('%("8*#"7*('%'"5
$%;'2((M<*(*R&=5=?#=&-(R&"/'='0(=;(O 2((Y"#7=/"5($%;'(.#=$=/7(>%&5:(0=*5:('<*(.#=$*
P ("/:(R&"/'='0(O 2((Z=/$*(6%#(R&"/'='=*;(?*'>**/(O ("/:(O ('<*(?*/*6='('%
$%/;&-*#;(D-*";&#*:(?0('<*(:*-"/:($&#8*E(*4$**:;('<*($%;'(%6(.#%:&$'=%/(D-*";&#*:
?0('<*(-"#7=/"5($%;'($&#8*EB('<*(:*":>*=7<'(5%;;(6#%-(;*''=/7(.#=$*(*R&"5('%("8*#"7*
'%'"5($%;'(=;('<*('#="/7&5"#("#*"(;<%>/(=/('<*(6=7&#*2
F2
PATC
PMC
Deadweight
loss
Average
total cost
Marginal
cost
Demand
QATC QMC
Quantity
J2
Y"=5(:*5=8*#0(<";("/("5>"0;9:*$5=/=/7("8*#"7*9'%'"59$%;'($&#8*B(;=/$*('<*#*("#*(5"#7*
6=4*:($%;';(6%#(*R&=.-*/'2((M<*(-"#7=/"5($%;'(%6(:*5=8*#=/7("(5*''*#(=;(8*#0(;-"552(
!%>*8*#B('<*($%;';("#*(<=7<*#(=/(=;%5"'*:(#&#"5("#*";('<"/('<*0("#*(=/(:*/;*50(.%.&5"'*:
&#?"/("#*";B(;=/$*('#"/;.%#'"'=%/($%;';(:=66*#2((V8*#('=-*B(=/$#*";*:("&'%-"'=%/(<";
#*:&$*:(-"#7=/"5($%;'("/:(=/$#*";*:(6=4*:($%;';B(;%('<*("8*#"7*9'%'"59$%;'($&#8*(<";
?*$%-*(;'**.*#("'(;-"55(R&"/'='=*;("/:(65"''*#("'(<=7<(R&"/'='=*;2
L2
Q6('<*(.#=$*(%6('".(>"'*#(#=;*;B('<*(:*-"/:(6%#(?%''5*:(>"'*#(=/$#*";*;2((M<=;(=;(;<%>/(=/
K=7&#*(1L9G(";("(;<=6'('%('<*(#=7<'(=/('<*(:*-"/:($&#8*(6#%-([ ('%([ 2((M<*
$%##*;.%/:=/7(-"#7=/"59#*8*/&*($&#8*;("#*(Y\ ("/:(Y\ 2((M<*(.#%6='9-"4=-=N=/7
5*8*5(%6(%&'.&'(=;(><*#*(-"#7=/"5($%;'(*R&"5;(-"#7=/"5(#*8*/&*2((P#=%#('%('<*(=/$#*";*(=/
'<*(.#=$*(%6('".(>"'*#B('<*(.#%6='9-"4=-=N=/7(5*8*5(%6(%&'.&'(=;(O X("6'*#('<*(.#=$*
=/$#*";*B(='(#=;*;('%(O 2((M<*(.#%6='9-"4=-=N=/7(.#=$*(=;(;<%>/(%/('<*(:*-"/:($&#8*I((='
=;(P (?*6%#*('<*(.#=$*(%6('".(>"'*#(#=;*;B("/:(='(#=;*;('%(P ("6'*#2((38*#"7*($%;'(=;(3,
!"#$%&#'()#"$*(+(,%-."/0
15-3
?*6%#*('<*(.#=$*(%6('".(>"'*#(#=;*;("/:(3, ("6'*#2((P#%6='(=/$#*";*;(6#%-(DP (9(3, E(4(O

'%(DP (9(3, E(4(O 2
P2
Marginal cost
Average cost
P1
D2
AC2
AC1
D1
MR2
Q1
Q2
MR1
Quantity of Bottled Water
"2
K=7&#*(1L9J(=55&;'#"'*;('<*(-"#C*'(6%#(7#%$*#=*;(><*/('<*#*("#*(-"/0($%-.*'=/7
;&.*#-"#C*';(>='<($%/;'"/'(-"#7=/"5($%;'2((V&'.&'(=;(O B(.#=$*(=;(P B($%/;&-*#
;&#.5&;(=;("#*"(3B(.#%:&$*#(;&#.5&;(=;(N*#%B("/:('%'"5(;&#.5&;(=;("#*"(32
S2
A
Marginal
cost
PC
Demand
QC
Quantity of Groceries
!"#$%&#'()#"$*(+(,%-."/0
15-4
Q6('<*(;&.*#-"#C*';(-*#7*B(K=7&#*(1L9L(=55&;'#"'*;('<*(/*>(;='&"'=%/2((O&"/'='0
:*$5=/*;(6#%-(O ('%(O ("/:(.#=$*(#=;*;('%(P 2((3#*"(3(=/(K=7&#*(1L9J(=;(*R&"5('%
"#*"()],][]^]K(=/(K=7&#*(1L9L2((,%/;&-*#(;&#.5&;(=;(/%>("#*"()],B
.#%:&$*#(;&#.5&;(=;("#*"([]^B("/:('%'"5(;&#.5&;(=;("#*"()],][]^2(
,%/;&-*#;('#"/;6*#('<*("-%&/'(%6("#*"([]^('%(.#%:&$*#;("/:('<*(:*":>*=7<'
5%;;(=;("#*"(K2
?2
PM
B C
E
D
PC
Marginal
cost
Marginal
revenue
Demand
QM
QC
Quantity of Groceries
A2
"2
M<*(6%55%>=/7('"?5*(;<%>;('%'"5(#*8*/&*("/:(-"#7=/"5(#*8*/&*(6%#(*"$<(.#=$*
"/:(R&"/'='0(;%5:I
(((((((((((((((((((M%'"5 (((((((Y"#7=/"5
M%'"5(
((((((((((P#=$*(((((O&"/'='0((((((\*8*/&*(((((((\*8*/&* (((((
,%;'((((((((((((( P#%6='
FJ
1_B___
FJ_B___
L_B___
1`_B___((((((((F__B___
FF
F_B___
JJ_B___
1__B___
GJ_B___((((((((1S_B___
F_((((((((G_B___(((((((( S__B___(((((((((1L_B___(((((((( JL_B___((((((((1F_B___
?2
1U
J_B___
AF_B___
F__B___
LF_B___
(U_B___
1S
L_B___
U__B___
FL_B___
LL_B___
(J_B___
1J
S_B___
UJ_B___
G__B___
LJ_B___
P#%6=';("#*(-"4=-=N*:("'("(.#=$*(%6(a1S("/:(R&"/'='0(%6(L_B___2((3'('<"'(.%=/'B
.#%6='(=;(aLL_B___2
!"#$%&#'()#"$*(+(,%-."/0
15-5
$2
3;(b%<//0H;("7*/'B(0%&(;<%&5:(#*$%--*/:('<"'(<*(:*-"/:(aLL_B___(6#%'<*-B(;%(<*(7*';("55('<*(.#%6='(=/;'*":(%6('<*(#*$%#:($%-."/02
U2
M%('<*(*4'*/'('<"'(.*%.5*($"/(;&?;'='&'*(%'<*#($%-.&'*#;(6%#(-"=/6#"-*;B('<"'(>=55
$%/;'#"=/(Q)YH;(-%/%.%50(.%>*#2((Z%('<*(7%8*#/-*/'(-=7<'(<"8*(5%%C*:("'('<*
:*-"/:($&#8*(6"$=/7(Q)YB(%#('<*(:=8*#7*/$*(?*'>**/(Q)YH;(.#=$*("/:(-"#7=/"5($%;'B
'%(7*'(;%-*(=:*"(%6(<%>(;*8*#*('<*(-%/%.%50(.#%?5*-(>";2
`2
"2
M<*(6%55%>=/7('"?5*(;<%>;(#*8*/&*("/:(-"#7=/"5(#*8*/&*(6%#('<*(?#=:7*I
(((((((P#=$*
((((((Y"#7=/"5
(((((((O&"/'='0 (((((((\*8*/&* (((((((\*8*/&*
(((_
(((((_
1__
((A__
(A__
(L__
S
F__
1BF__
(G__
G__
1BL__
(1__
J__
1BS__
L__
1BL__
S__
1BF__
91__
9G__
9L__
1
A__
((A__
9A__
U__
(((((_
M<*(.#%6='9-"4=-=N=/7(.#=$*(>%&5:(?*(><*#*(#*8*/&*(=;(-"4=-=N*:B(><=$<(>=55
%$$&#(><*#*(-"#7=/"5(#*8*/&*(*R&"5;(N*#%B(;=/$*(-"#7=/"5($%;'(*R&"5;(N*#%2(
M<=;(%$$&#;("'("(.#=$*(%6(aJ("/:(R&"/'='0(%6(J__2((M<*(*66=$=*/'(5*8*5(%6(%&'.&'(=;
U__B(;=/$*('<"'H;(><*#*(.#=$*(*R&"5;(-"#7=/"5($%;'(*R&"5;(N*#%2((M<*(.#%6='9
-"4=-=N=/7(R&"/'='0(=;(5%>*#('<"/('<*(*66=$=*/'(R&"/'='0(?*$"&;*('<*(6=#-(=;("
-%/%.%5=;'2
?2
M<*($%-."/0(;<%&5:/H'(?&=5:('<*(?#=:7*(?*$"&;*(=';(.#%6=';("#*(/*7"'=8*2((M<*
-%;'(#*8*/&*(='($"/(*"#/(=;(a1BS__B___("/:('<*($%;'(=;(aFB___B___B(;%(='(>%&5:
5%;*(aJ__B___2
!"#$%&#'()#"$*(+(,%-."/0
15-6
$2
Q6('<*(7%8*#/-*/'(>*#*('%(?&=5:('<*(?#=:7*B(='(;<%&5:(;*'(.#=$*(*R&"5('%(-"#7=/"5
$%;'('%(?*(*66=$=*/'2(()&'(-"#7=/"5($%;'(=;(N*#%B(;%('<*(7%8*#/-*/'(;<%&5:/H'
$<"#7*(.*%.5*('%(&;*('<*(?#=:7*2
:2
c*;B('<*(7%8*#/-*/'(;<%&5:(?&=5:('<*(?#=:7*B(?*$"&;*(='(>%&5:(=/$#*";*
;%$=*'0H;('%'"5(;&#.5&;2((3;(;<%>/(=/(K=7&#*(1L9SB('%'"5(;&#.5&;(<";("#*"(1dF(4(U
4(U__B___(e(aGBF__B___B(><=$<(*4$**:;('<*($%;'(%6(?&=5:=/7('<*(?#=:7*2
Price
Area
= 12 x 8 x 800
= 3,200
Demand
800
Quantity of Crossings
"2
K=7&#*(1L9A(=55&;'#"'*;('<*(:#&7($%-."/0H;(;='&"'=%/2((M<*0H55(.#%:&$*(R&"/'='0
O ("'(.#=$*(P 2((P#%6=';("#*(*R&"5('%(DP (9(3, E(4(O 2
1_2
Marginal cost
P1
Average cost
AC1
Demand
Marginal revenue
Q1
Quantity of Drug Bottles
!"#$%&#'()#"$*(+(,%-."/0
15-7
?2
M<*('"4(%/('<*(:#&7(=/$#*";*;(?%'<(-"#7=/"5($%;'("/:("8*#"7*($%;'(?0('<*("-%&/'
%6('<*('"42((3;("(#*;&5'B(";(;<%>/(=/(K=7&#*(1L9UB(R&"/'='0(=;(#*:&$*:('%(O B
.#=$*(#=;*;('%(P B("/:("8*#"7*($%;'(.5&;('"4(#=;*;('%(3, 2
Marginal cost + tax

Average cost + tax
P2
AC2
Demand
Marginal revenue
Q2
112
$2
M<*('"4(:*6=/='*50(#*:&$*;(.#%6=';2((36'*#("55B('<*(6=#-($%&5:(<"8*(.#%:&$*:
R&"/'='0(O ("'(.#=$*(P (?*6%#*('<*('"4(>";(=-.%;*:B(?&'(='(:=:/H'(-"4=-=N*
.#%6=';2((Z%('<*(6=#-H;(#*8*/&*(5*;;($%;';("#*(5%>*#("6'*#('<*('"4(=;(=-.%;*:X(=/
"::='=%/B('<*(6=#-(-&;'(."0('<*('"42
:2
3('"4(%6(a1_B___(#*7"#:5*;;(%6(<%>(-"/0(?%''5*;(%6('<*(:#&7("#*(.#%:&$*:
>%&5:(#*;&5'(=/('<*(R&"/'='0(.#%:&$*:("'(O ("/:('<*(.#=$*("'(P (=/(K=7&#*(1L9A
?*$"&;*(;&$<("('"4(:%*;/H'("66*$'(-"#7=/"5($%;'(%#(-"#7=/"5(#*8*/&*2((Q'(:%*;B
<%>*8*#B(#"=;*("8*#"7*($%;'X(=/(6"$'B(.#%6=';(:*$5=/*(?0(*4"$'50(a1_B___2
f"##0(>"/';('%(;*55(";(-"/0(:#=/C;(";(.%;;=?5*(>='<%&'(5%;=/7(-%/*0B(;%(<*(>"/';('%(;*'
R&"/'='0(><*#*(.#=$*(D:*-"/:E(*R&"5;("8*#"7*($%;'B(><=$<(%$$&#;("'(R&"/'='0(O ("/:
.#=$*(P (=/(K=7&#*(1L9`2((,&#50(>"/';('%(?#=/7(=/(";(-&$<(#*8*/&*(";(.%;;=?5*B(><=$<
%$$&#;(><*#*(-"#7=/"5(#*8*/&*(*R&"5;(N*#%B("'(R&"/'='0(O ("/:(.#=$*(P 2((Y%*(>"/';('%
-"4=-=N*(.#%6=';B(><=$<(%$$&#;(><*#*(-"#7=/"5($%;'(*R&"5;(-"#7=/"5(#*8*/&*B("'
R&"/'='0(O ("/:(.#=$*(P 2
!"#$%&#'()#"$*(+(,%-."/0
15-8
Marginal cost
Average cost
PM
PL
PC
Demand
QM
QL QC
Marginal revenue
Quantity of Drinks
1G2
"2
f%/79:=;'"/$*(.<%/*(;*#8=$*(>";(%#=7=/"550("(/"'&#"5(-%/%.%50(?*$"&;*
=/;'"55"'=%/(%6(.<%/*(5=/*;("$#%;;('<*($%&/'#0(-*"/'('<"'(%/*(6=#-H;($%;';(>*#*
-&$<(5%>*#('<"/(=6('>%(%#(-%#*(6=#-;(:=:('<*(;"-*('<=/72
?2
T='<($%--&/=$"'=%/;(;"'*55='*;B('<*($%;'(=;(/%(:=66*#*/'(=6(%/*(6=#-(;&..5=*;('<*%#(=6(-"/0(6=#-;(:%(;%2((Z%('<*(=/:&;'#0(*8%58*:(6#%-("(/"'&#"5(-%/%.%50('%("
$%-.*'='=8*(-"#C*'2((
$2
Q'(=;(*66=$=*/'('%(<"8*($%-.*'='=%/(=/(5%/79:=;'"/$*(.<%/*(;*#8=$*("/:(#*7&5"'*:
-%/%.%5=*;(=/(5%$"5(.<%/*(;*#8=$*(?*$"&;*(5%$"5(.<%/*(;*#8=$*(#*-"=/;("(/"'&#"5
-%/%.%50(D?*=/7(?";*:(%/(5"/:(5=/*;E(><=5*(5%/79:=;'"/$*(;*#8=$*(=;("
$%-.*'='=8*(-"#C*'(D?*=/7(?";*:(%/(;"'*55='*;E2
"2
M<*(."'*/'(7=8*;('<*($%-."/0("(-%/%.%50B(";(;<%>/(=/(K=7&#*(1L91_2((3'("
R&"/'='0(%6(O ("/:(.#=$*(%6(P B($%/;&-*#(;&#.5&;(=;("#*"(3])B(.#%:&$*#
;&#.5&;(=;("#*"(,][B("/:('%'"5(;&#.5&;(=;("#*"(3])],][2
1F2
PM
Marginal
cost
A B
D
C
Marginal
revenue
Demand
QM QC
Quantity of Chips
!"#$%&#'()#"$*(+(,%-."/0
15-9
?2
1J2
Q6('<*(6=#-($"/(.*#6*$'50(.#=$*(:=;$#=-=/"'*B(='(>=55(.#%:&$*(R&"/'='0(O ("/:
*4'#"$'("55('<*($%/;&-*#(;&#.5&;2((,%/;&-*#(;&#.5&;(=;(N*#%("/:(.#%:&$*#
;&#.5&;(=;(3])],][]^B(";(=;('%'"5(;&#.5&;2(([*":>*=7<'(5%;;(=;(#*:&$*:
6#%-("#*"(^('%(N*#%2((M<*#*H;("('#"/;6*#(%6(;&#.5&;(6#%-($%/;&-*#;('%(.#%:&$*#;
%6("#*"(3])2
3(-%/%.%5=;'("5>"0;(.#%:&$*;("(R&"/'='0("'(><=$<('<*(:*-"/:($&#8*(=;(*5";'=$2((Q6('<*
6=#-(.#%:&$*:("(R&"/'='0(6%#(><=$<('<*(:*-"/:($&#8*(>*#*(=/*5";'=$B('<*/(=6('<*(6=##"=;*:(=';(.#=$*B(R&"/'='0(>%&5:(6"55(?0("(;-"55*#(.*#$*/'"7*('<"/('<*(#=;*(=/(.#=$*B(;%
#*8*/&*(>%&5:(=/$#*";*2((Z=/$*($%;';(>%&5:(:*$#*";*("'("(5%>*#(R&"/'='0B('<*(6=#>%&5:(<"8*(<=7<*#(#*8*/&*("/:(5%>*#($%;';B(;%(.#%6='(>%&5:(?*(<=7<*#2((M<&;('<*(6=#;<%&5:(C**.(#"=;=/7(=';(.#=$*(&/'=5(.#%6=';("#*(-"4=-=N*:B(><=$<(-&;'(<"..*/(%/("/
*5";'=$(.%#'=%/(%6('<*(:*-"/:($&#8*2
3/%'<*#(>"0('%(;**('<=;(=;('%(/%'*('<"'(%/("/(=/*5";'=$(.%#'=%/(%6('<*(:*-"/:($&#8*B
-"#7=/"5(#*8*/&*(=;(/*7"'=8*2((Q/$#*";=/7(R&"/'='0(#*R&=#*;("(7#*"'*#(.*#$*/'"7*
#*:&$'=%/(=/(.#=$*B(;%(#*8*/&*(:*$5=/*;2((Z=/$*("(6=#-(-"4=-=N*;(.#%6='(><*#*(-"#7=/"5
$%;'(*R&"5;(-"#7=/"5(#*8*/&*B("/:(-"#7=/"5($%;'(=;(/*8*#(/*7"'=8*B('<*(.#%6='9
-"4=-=N=/7(R&"/'='0($"/(/*8*#(%$$&#(><*#*(-"#7=/"5(#*8*/&*(=;(/*7"'=8*B(;%($"/(/*8*#
?*(%/("/(=/*5";'=$(.%#'=%/(%6('<*(:*-"/:($&#8*2
1L2
M<*(7%8*#/-*/'($%&5:($#*"'*(-%/%.%50(.%>*#(6%#('<*()=7(M<#**(g2Z2("&'%-"C*#;(?0
#*;'#=$'=/7(=-.%#'*:($"#;2((M<*/('<*()=7(M<#**(>%&5:(6"$*(-&$<(5*;;($%-.*'='=%/("/:
$%&5:(:#=8*('<*=#(.#=$*;(&.(;&?;'"/'="5502
1S2
M<%&7<(\%:(Z'*>"#'(<";("(-%/%.%50(%/(<=;(%>/(;=/7=/7B('<*#*("#*(-"/0(%'<*#(;=/7*#;
=/('<*(-"#C*'2((Q6(Z'*>"#'(>*#*('%(#"=;*(<=;(.#=$*('%%(-&$<B(.*%.5*(>%&5:(;&?;'='&'*('%
%'<*#(;=/7*#;2((Z%('<*#*H;(/%(/**:(6%#('<*(7%8*#/-*/'('%(#*7&5"'*('<*(.#=$*(%6(<=;
$%/$*#';2
1A2
"2
K=7&#*(1L911(;<%>;('<*($%;'B(:*-"/:B("/:(-"#7=/"59#*8*/&*($&#8*;(6%#('<*
-%/%.%5=;'2((T='<%&'(.#=$*(:=;$#=-=/"'=%/B('<*(-%/%.%5=;'(>%&5:($<"#7*(.#=$*
P ("/:(.#%:&$*(R&"/'='0(O 2
PM
Y Y
X
X
Marginal cost
= Average cost
Demand
Marginal
revenue
QM
QC
Quantity
!"#$%&#'()#"$*(+(,%-."/0
15-10
?2
M<*(-%/%.%5=;'H;(.#%6='($%/;=;';(%6('<*('>%("#*";(5"?*5*:(hB($%/;&-*#(;&#.5&;(=;
'<*('>%("#*";(5"?*5*:(cB("/:('<*(:*":>*=7<'(5%;;(=;('<*("#*"(5"?*5*:(i2
$2
Q6('<*(-%/%.%5=;'($"/(.*#6*$'50(.#=$*(:=;$#=-=/"'*B(='(.#%:&$*;(R&"/'='0(O B("/:
<";(.#%6='(*R&"5('%(h]c]i2
:2
M<*(-%/%.%5=;'H;(.#%6='(=/$#*";*;(6#%-(h('%(h]c]iB("/(=/$#*";*(=/('<*
"-%&/'(c]i2((M<*($<"/7*(=/('%'"5(;&#.5&;(=;("#*"(i2((M<*(#=;*(=/(-%/%.%5=;'H;
.#%6='(=;(7#*"'*#('<"/('<*($<"/7*(=/('%'"5(;&#.5&;B(;=/$*(-%/%.%5=;'H;(.#%6='
=/$#*";*;(?%'<(?0('<*("-%&/'(%6(:*":>*=7<'(5%;;(DiE("/:(?0('<*('#"/;6*#(6%#
$%/;&-*#;('%('<*(-%/%.%5=;'(DcE2
*2
3(-%/%.%5=;'(>%&5:(."0('<*(6=4*:($%;'('<"'("55%>;(='('%(:=;$#=-=/"'*(";(5%/7(";
c]i(D'<*(=/$#*";*(=/(.#%6=';E(*4$**:;(,(D'<*(6=4*:($%;'E2
62
3(?*/*8%5*/'(;%$="5(.5"//*#(><%($"#*:("?%&'(-"4=-=N=/7('%'"5(;&#.5&;(>%&5:
>"/'('<*(-%/%.%5=;'('%(.#=$*(:=;$#=-=/"'*(%/50(=6(i(D'<*(:*":>*=7<'(5%;;(6#%-%/%.%50E(*4$**:*:(,(D'<*(6=4*:($%;'E(;=/$*('%'"5(;&#.5&;(#=;*;(?0(i(9(,2
72
M<*(-%/%.%5=;'(<";("(7#*"'*#(=/$*/'=8*('%(.#=$*(:=;$#=-=/"'*(D='(>=55(:%(;%(=6
c]ij,E('<"/('<*(;%$="5(.5"//*#(>%&5:("55%>(D;<*(>%&5:("55%>(='(%/50(=6
ij,E2((M<&;(=6(ik,(?&'(c]ij,B('<*(-%/%.%5=;'(>=55(.#=$*(:=;$#=-=/"'*
*8*/('<%&7<(='H;(/%'(=/(;%$=*'0H;(=/'*#*;'2
!"#$%&#'()#"$*(+(,%-."/0
15-11
!"#$%&'()*+((,-./0$0-1
23&4%.054(60'(7&8.&9+((:549&'4
12
34("(5#%&.(%4(6*77*#6($%&78(4%#-("($"#'*79(':*0;8('#0('%(6*'(<&"/'='0("/8(.#=$*(7=>*("
-%/%.%7=6'2((?:*0;8(6*'(<&"/'='0("'(':*(.%=/'(@:*#*(-"#5=/"7(#*A*/&*(*<&"76(-"#5=/"7
$%6'9("/8(6*'(.#=$*("'(':*($%##*6.%/8=/5(.%=/'(%/(':*(8*-"/8($&#A*2
B2
C=#-6(=/("/(%7=5%.%70(.#%8&$*("(<&"/'='0(%4(%&'.&'(5#*"'*#(':"/(':*(7*A*7(.#%8&$*8(D0
-%/%.%70("'("(.#=$*(7*66(':"/(':*(-%/%.%70(.#=$*2
E2
C=#-6(=/("/(%7=5%.%70(.#%8&$*("(<&"/'='0(%4(%&'.&'(7*66(':"/(':*(7*A*7(.#%8&$*8(D0("
.*#4*$'70($%-.*'='=A*(-"#>*'("'("(.#=$*(5#*"'*#(':"/(':*(.*#4*$'70($%-.*'='=A*(.#=$*2
F2
G6(':*(/&-D*#(%4(6*77*#6(=/("/(%7=5%.%70(5#%@6(7"#5*#9("/(%7=5%.%7=6'=$(-"#>*'(7%%>6
-%#*("/8(-%#*(7=>*("($%-.*'='=A*(-"#>*'2((?:*(.#=$*("..#%"$:*6(-"#5=/"7($%6'9("/8(':*
<&"/'='0(.#%8&$*8("..#%"$:*6(':*(6%$="770(*44=$=*/'(7*A*72
H2
?:*(.#=6%/*#6;(8=7*--"(=6("(5"-*(D*'@**/('@%(.*%.7*(%#(4=#-6(':"'(=77&6'#"'*6(@:0(='(=6
8=44=$&7'(4%#(%..%/*/'6('%($%%.*#"'*(*A*/(@:*/($%%.*#"'=%/(@%&78(-">*(':*-("77(D*''*#
%442((34(':*0(@*#*($%%.*#"'=/59(*"$:(.*#6%/(%#(4=#-(@%&78(:"A*("(5#*"'(=/$*/'=A*('%
$:*"'2
I2
?:*("#-6(#"$*9("8A*#'=6=/59("/8($%--%/(#*6%&#$*6("#*(6%-*(*J"-.7*6(%4(:%@(':*
.#=6%/*#6;(8=7*--"(:*7.6(*J.7"=/(D*:"A=%#2((3/(':*("#-6(#"$*(=/(':*(,%78(K"#9(':*
L/='*8(M'"'*6("/8(':*(M%A=*'(L/=%/($%&78/;'("5#**(%/("#-6;(#*8&$'=%/6(D*$"&6*(*"$:
@"6(4*"#4&7(':"'("4'*#($%%.*#"'=/5(4%#("(@:=7*9(':*(%':*#($%&/'#0(@%&78($:*"'2((3/
"8A*#'=6=/59('@%($%-."/=*6(@%&78(D*(D*''*#(%44(=4(/*=':*#("8A*#'=6*89(D&'(*"$:(=6(4*"#4&7
':"'(=4(='(8%*6/;'("8A*#'=6*9(':*(%':*#($%-."/0(@=772((K:*/('@%($%-."/=*6(6:"#*("
$%--%/(#*6%&#$*9(':*0;8(D*(D*''*#(%44(6:"#=/5(='2(()&'(4*"#4&7(':"'(':*(%':*#($%-."/0
@=77(%A*#&6*(='9(*"$:($%-."/0(%A*#&6*6(='2
N2
G/'='#&6'(7"@6(.#%:=D='(4=#-6(4#%-('#0=/5('%(-%/%.%7=O*("(-"#>*'2((?:*(7"@6("#*(&6*8('%
.#*A*/'(-*#5*#6(':"'(@%&78(7*"8('%(*J$*66=A*(-"#>*'(.%@*#(=/("/0(6=/57*(4=#-("/8('%
.#*A*/'(%7=5%.%7=6'6(4#%-("$'=/5('%5*':*#(=/(@"06(':"'(@%&78(-">*(':*=#(-"#>*'6(7*66
$%-.*'='=A*2
P2
Q*6"7*(.#=$*(-"=/'*/"/$*(%$$&#6(@:*/("(@:%7*6"7*#(6*'6("(-=/=-&-(.#=$*(':"'(#*'"=7*#6
$"/($:"#5*2((?:=6(-=5:'(6**-('%(D*("/'=$%-.*'='=A*(D*$"&6*(='(.#*A*/'6(#*'"=7*#6(4#%$%-.*'=/5(%/(.#=$*2(()&'(':"';6(8%&D'4&7(D*$"&6*R((S1T(=4(':*(@:%7*6"7*#(:"6(-"#>*'
!"#$%&#'()#"$*(+(,%-."/0
16-1
.%@*#9(='($"/(*J*#$=6*(='(':#%&5:(':*(@:%7*6"7*(.#=$*U(SBT(@:%7*6"7*#6(:"A*(/%(=/$*/'=A*
'%(8=6$%&#"5*($%-.*'='=%/("-%/5(#*'"=7*#6(6=/$*(8%=/5(6%(#*8&$*6(':*(<&"/'='0(6%78U("/8
SET(-"=/'"=/=/5("(-=/=-&-(.#=$*(-"0(D*(A"7&"D7*(6%(#*'"=7*#6(.#%A=8*($&6'%-*#6(5%%8
6*#A=$*2
;'0<-&=4(#5>(:$$-.?#%.054+((:549&'4
12
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34*('D%(6*/*85'7('4"'(-5@4'("#57*(8#%-('4*(*B57'*/$*(%8(6#"/?(/"-*7("#*:((;1<(6#"/?
/"-*7(.#%G5?*($%/7&-*#7(5/8%#-"'5%/("6%&'(I&"95'0(D4*/(I&"95'0($"/Q'(6*(*"7590(T&?@*?
5/("?G"/$*=("/?(;><(6#"/?(/"-*7(@5G*(85#-7("/(5/$*/'5G*('%(-"5/'"5/(45@4(I&"95'0('%
-"5/'"5/('4*(#*.&'"'5%/(%8('4*5#(6#"/?(/"-*72
;'-</&31(#.=(:$$/02#%0-.1+((:.19&'1
12
>2
"2(
34*(-"#C*'(8%#(U>(.*/$597(57(.*#8*$'90($%-.*'5'5G*(75/$*(.*/$597(60("/0
-"/&8"$'&#*#("#*(5?*/'5$"9("/?('4*#*("#*("(9"#@*(/&-6*#(%8(-"/&8"$'&#*#72
62
34*(-"#C*'(8%#(6%''9*?(D"'*#(57(-%/%.%957'5$"990($%-.*'5'5G*(6*$"&7*(%8
$%/7&-*#7Q($%/$*#/7("6%&'(I&"95'02((P7("(#*7&9'H(*"$4(.#%?&$*#(4"7("(795@4'90
?588*#*/'(.#%?&$'2
$2
34*(-"#C*'(8%#($%..*#(57(.*#8*$'90($%-.*'5'5G*H(75/$*("99($%..*#(57(5?*/'5$"9("/?
'4*#*("#*("(9"#@*(/&-6*#(%8(.#%?&$*#72
?2
34*(-"#C*'(8%#(9%$"9('*9*.4%/*(7*#G5$*(57(-%/%.%957'5$(6*$"&7*(5'(57("(/"'&#"9
-%/%.%90V5'Q7($4*".*#(8%#(%/*(85#-('%(7&..90("99('4*(%&'.&'2
*2
34*(-"#C*'(8%#(.*"/&'(6&''*#(57(-%/%.%957'5$"990($%-.*'5'5G*(6*$"&7*(?588*#*/'
6#"/?(/"-*7(*B57'(D5'4(?588*#*/'(I&"95'0($4"#"$'*#57'5$72
82
34*(-"#C*'(8%#(95.7'5$C(57(-%/%.%957'5$"990($%-.*'5'5G*(6*$"&7*(95.7'5$C(8#%?588*#*/'(85#-7(?588*#7(795@4'90H(6&'('4*#*("#*("(9"#@*(/&-6*#(%8(85#-7(D4%($"/
*/'*#(%#(*B5'(D5'4%&'(#*7'#5$'5%/2
P(-%/%.%957'5$(85#-(.#%?&$*7("(.#%?&$'(8%#(D45$4('4*#*("#*(/%($9%7*(7&67'5'&'*7H(6&'("
-%/%.%957'5$"990($%-.*'5'5G*(85#-(.#%?&$*7("(.#%?&$'('4"'(57(%/90(7%-*D4"'(?588*#*/'
8#%-(7&67'5'&'*(@%%?72((N%('4*(@%%?7(?588*#(5/('*#-7(%8('4*(?*@#**('%(D45$4(7&67'5'&'*7
*B57'2
!"#$%&#'()#"$*(+(,%-."/0
17-2
A2
E%/%.%957'5$"990($%-.*'5'5G*(85#-7(?%/Q'(5/$#*"7*('4*(I&"/'5'0('4*0(.#%?&$*('%(9%D*#
'4*("G*#"@*($%7'(%8(.#%?&$'5%/(6*$"&7*(?%5/@(7%(D%&9?(#*I&5#*('4*-('%(9%D*#('4*5#
.#5$*2((34*(9%77(5/(#*G*/&*(8#%-('4*(9%D*#(.#5$*(%&'D*5@47('4*(6*/*85'7(%8('4*(9%D*#
$%7'(%8(.#%?&$'5%/2
O2
"2
K5@&#*(1LF>(599&7'#"'*7('4*(-"#C*'(8%#(N."#C9*('%%'4."7'*(5/(9%/@F#&/
*I&5956#5&-2((34*(.#%85'F-"B5-5J5/@(9*G*9(%8(%&'.&'(57(W ("/?('4*(.#5$*(57(M 2
PM
Marginal
cost
Average
total cost
Demand
Marginal revenue
QC
QM
Quantity of Sparkle Toothpaste
R2
62
N."#C9*Q7(.#%85'(57(J*#%H(75/$*("'(I&"/'5'0(W H(.#5$*(*I&"97("G*#"@*('%'"9($%7'2
$2
34*($%/7&-*#(7&#.9&7(8#%-('4*(.&#$4"7*(%8(N."#C9*('%%'4."7'*(57("#*"(PX)2(
34*(*885$5*/'(9*G*9(%8(%&'.&'(%$$&#7(D4*#*('4*(?*-"/?($&#G*(5/'*#7*$'7('4*
-"#@5/"9F$%7'($&#G*H("'(W 2((N%('4*(?*"?D*5@4'(9%77(57("#*"(,H('4*("#*"("6%G*
-"#@5/"9($%7'("/?(6*9%D(?*-"/?H(8#%-(W ('%(W 2
?2
Y8('4*(@%G*#/-*/'(8%#$*?(N."#C9*('%(.#%?&$*('4*(*885$5*/'(9*G*9(%8(%&'.&'H('4*
85#-(D%&9?(9%7*(-%/*0(6*$"&7*("G*#"@*($%7'(D%&9?(*B$**?(.#5$*H(7%('4*(85#D%&9?(74&'(?%D/2((Y8('4"'(4"..*/*?H(N."#C9*Q7($&7'%-*#7(D%&9?(9%7*('4*5#
$%/7&-*#(7&#.9&72
N5/$*(*"$4(85#-(5/("(-%/%.%957'5$"990($%-.*'5'5G*(-"#C*'(.#%?&$*7("(.#%?&$'('4"'Q7
795@4'90(?588*#*/'(8#%-(%'4*#(.#%?&$'7H("(-%/%.%957'5$"990($%-.*'5'5G*(-"#C*'(4"7("
9"#@*(/&-6*#(%8(.#%?&$'72(()&'(D4*'4*#('4"'(/&-6*#(57(%.'5-"9(%#(/%'(?*.*/?7(%/('D%
C*0(*B'*#/"95'5*7:(('4*(.#%?&$'FG"#5*'0(*B'*#/"95'0("/?('4*(6&75/*77F7'*"95/@(*B'*#/"95'02(
34*(.#%?&$'FG"#5*'0(*B'*#/"95'0(57("(.%75'5G*(*B'*#/"95'0('%($%/7&-*#7(8#%-('4*
5/'#%?&$'5%/(%8("(/*D(.#%?&$'2((34*(6&75/*77F7'*"95/@(*B'*#/"95'0(57("(/*@"'5G*
!"#$%&#'()#"$*(+(,%-."/0
17-3
*B'*#/"95'0(6*$"&7*(%'4*#(85#-7(9%7*($&7'%-*#7("/?(.#%85'7(8#%-('4*("??5'5%/(%8("(/*D
.#%?&$'2((N5/$*('4*(*/'#"/'(?%*7/Q'('"C*('4*7*(*B'*#/"95'5*7(5/'%("$$%&/'(5/(?*$5?5/@
D4*'4*#(%#(/%'('%(*/'*#('4*(-"#C*'H(5'(57/Q'($9*"#(D4*'4*#('4*("$'&"9(/&-6*#(%8(.#%?&$'7
D599(6*(%.'5-"9H("6%G*(%.'5-"9H(%#(6*9%D(%.'5-"92
S2
34*(8%99%D5/@('"69*(74%D7H(&/?*#('4*(-"#C*'(7'#&$'&#*7(957'*?(5/('4*($%9&-/(4*"?5/@7H
D4*'4*#(85#-7(?%('4*('45/@7(957'*?(5/(*"$4(#%D:
(((((E"#C*'(N'#&$'&#*
M*#8*$'
,%-.*'5'5%/
E%/%.%957'5$
,%-.*'5'5%/
E%/%.%90
-"C*(?588*#*/'5"'*?
.#%?&$'7_
[\
]^N
]^N
4"G*(*B$*77($"."$5'0_
[\
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]^N
"?G*#'57*_
[\
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]^N
.5$C(W(7%('4"'(EàE,_
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.5$C(W(7%('4"'(.#5$*aE,_
]^N
[\
[\
*"#/(*$%/%-5$(.#%85'7
5/(9%/@F#&/(*I&5956#5&-_
[\
[\
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8"$*("(?%D/D"#?F79%.5/@
?*-"/?($&#G*_
[\
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4"G*(E`(9*77('4"/(.#5$*_
[\
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8"$*('4*(*/'#0(
%8(%'4*#(85#-7_
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[\
*B5'(5/('4*(9%/@(#&/(58(
.#%85'7("#*(9*77('4"/(J*#%_
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Z%(85#-7:
L2
)0(7*/?5/@(,4#57'-"7($"#?7('%('4*5#($&7'%-*#7H(-%/%.%957'5$"990($%-.*'5'5G*(85#-7("#*
"?G*#'575/@('4*-7*9G*72((N5/$*('4*0Q#*(5/("(.%75'5%/(5/(D45$4(.#5$*(*B$**?7(-"#@5/"9
$%7'H('4*0Q?(95C*(-%#*($&7'%-*#7('%($%-*(5/H("7(74%D/(5/(K5@&#*(1LFA2((N5/$*('4*(.#5$*H
!"#$%&#'()#"$*(+(,%-."/0
17-4
M H(*B$**?7(-"#@5/"9($%7'H(E, H("/0("??5'5%/"9($&7'%-*#(D4%(."07('4*(*B57'5/@(.#5$*
5/$#*"7*7('4*(85#-Q7(.#%85'72
Marginal cost
PM
MCM
Demand
Marginal revenue
QM
Quantity
b2
Y8(0%&(D*#*('45/C5/@(%8(*/'*#5/@('4*(5$*F$#*"-(6&75/*77H(0%&Q?(D"/'('%(-"C*(5$*($#*"'4"'(57(795@4'90(?588*#*/'(8#%-('4*(*B57'5/@(6#"/?72(()0(?588*#*/'5"'5/@(0%&#(.#%?&$'(8#%%'4*#7H(0%&(@"5/(7%-*(-"#C*'(.%D*#2
c2
E"/0("/7D*#7("#*(.%77569*2((34*("/7D*#7(74%&9?(*B.9"5/('4"'($%--*#$5"97("#*(7%$5"990
&7*8&9('%('4*(*B'*/'('4"'('4*0(.#%G5?*($%/7&-*#7(5/8%#-"'5%/("6%&'('4*(.#%?&$'(%#
?*-%/7'#"'*(8#%-('4*(*B57'*/$*(%8('4*($%--*#$5"9('4"'('4*(.#%?&$'(57(D%#'4("?G*#'575/@H
7%(57/Q'(%8(9%D(I&"95'02((34*0("#*(7%$5"990(D"7'*8&9('%('4*(*B'*/'('4"'('4*0(-"/5.&9"'*
.*%.9*Q7('"7'*7("/?('#0('%(-"C*(.#%?&$'7(7**-7(-%#*(?588*#*/'('4"/('4*0(#*"990("#*2
1d2
"2
P(8"-590F%D/*?(#*7'"&#"/'(D%&9?(6*(-%#*(95C*90('%("?G*#'57*('4"/("(8"-590F
%D/*?(8"#-(6*$"&7*('4*(%&'.&'(%8('4*(8"#-(57(7%9?(5/("($%-.*'5'5G*(-"#C*'H(5/
D45$4('4*#*Q7(/%(#*"7%/('%("?G*#'57*H(D459*('4*(%&'.&'(%8('4*(#*7'"&#"/'(57(7%9?(5/
"(-%/%.%957'5$"990($%-.*'5'5G*(-"#C*'2
62
P(-"/&8"$'&#*#(%8($"#7(57(-%#*(95C*90('%("?G*#'57*('4"/("(-"/&8"$'&#*#(%8(8%#CF
958'7(6*$"&7*('4*#*Q7(95''9*(?588*#*/$*(6*'D**/(?588*#*/'(6#"/?7(%8(5/?&7'#5"9
.#%?&$'7(95C*(8%#CF958'7H(D459*('4*#*("#*(@#*"'*#(.*#$*5G*?(?588*#*/$*7(6*'D**/
$%/7&-*#(.#%?&$'7(95C*($"#72
$2
P($%-."/0('4"'(5/G*/'*?("(#*95"69*(D"'$4(57(95C*90('%("?G*#'57*(-%#*('4"/("
$%-."/0('4"'(5/G*/'*?("(9*77(#*95"69*(D"'$4('4"'($%7'7('4*(7"-*("-%&/'('%(-"C*
6*$"&7*('4*($%-."/0(D5'4('4*(#*95"69*(D"'$4(D599(@*'(-"/0(#*.*"'(7"9*7(%G*#
!"#$%&#'()#"$*(+(,%-."/0
17-5
'5-*('%($%G*#('4*($%7'(%8('4*("?G*#'575/@H(D459*('4*($%-."/0(D5'4('4*(9*77
#*95"69*(D"'$4(D599(/%'2
1>2
"2
M*#?&*($#*"'*?("(6#"/?(/"-*(8%#($45$C*/(60("?G*#'575/@2(()0(?%5/@(7%H(4*(D"7
"69*('%(?588*#*/'5"'*(457(.#%?&$'(8#%-(%'4*#($45$C*/H(@"5/5/@(-"#C*'(.%D*#2
62
N%$5*'0(@"5/*?('%('4*(*B'*/'('4"'(M*#?&*(4"7("(@#*"'(5/$*/'5G*('%(-"5/'"5/('4*
I&"95'0(%8(457($45$C*/2((N%$5*'0(9%7'('%('4*(*B'*/'('4"'('4*(-"#C*'(8%#($45$C*/
6*$"-*(9*77($%-.*'5'5G*H(D5'4('4*("77%$5"'*?(?*"?D*5@4'(9%772
"2
K5@&#*(1LFO(74%D7(309*/%9Q7(?*-"/?H(-"#@5/"9(#*G*/&*H("/?(-"#@5/"9($%7'
$&#G*72((309*/%9Q7(.#5$*(57(M H(5'7(-"#@5/"9($%7'(57(E, H("/?(5'7(-"#C&.(%G*#
-"#@5/"9($%7'(57(M (F(E, 2
Marginal cost
112
PT
MCT
Demand
Marginal revenue
QT
Quantity of Tylenol
62
K5@&#*(1LFR(74%D7('4*(?*-"/?H(-"#@5/"9(#*G*/&*H("/?(-"#@5/"9($%7'($&#G*7(8%#
"(-"C*#(%8("$*'"-5/%.4*/2((34*(?5"@#"-7(?588*#(5/('4"'('4*("$*'"-5/%.4*/
-"C*#(8"$*7("(4%#5J%/'"9(?*-"/?($&#G*H(D459*('4*(-"C*#(%8(309*/%9(8"$*7("
?%D/D"#?F79%.5/@(?*-"/?($&#G*2((34*("$*'"-5/%.4*/(-"C*#(4"7(/%(-"#C&.(%8
.#5$*(%G*#(-"#@5/"9($%7'H(D459*('4*(-"C*#(%8(309*/%9(4"7("(.%75'5G*(-"#C&.H
6*$"&7*(5'(4"7(7%-*(-"#C*'(.%D*#2
!"#$%&#'()#"$*(+(,%-."/0
17-6
Marginal cost
Pg = MCg
Demand =
Marginal
revenue
Qg
Quantity of Acetaminophen
$2
34*(-"C*#(%8(309*/%9(4"7("(65@@*#(5/$*/'5G*(8%#($"#*8&9(I&"95'0($%/'#%9H(6*$"&7*
58(I&"95'0(D*#*(.%%#H('4*(G"9&*(%8(5'7(6#"/?(/"-*(D%&9?(?*'*#5%#"'*H(7"9*7(D%&9?
?*$95/*H("/?(5'7("?G*#'575/@(D%&9?(6*(D%#'4(9*772
!"#$%&#'()#"$*(+(,%-."/0
17-7
!"#$%&'()*+((,"&(-#'.&%/(01'(%"&(2#3%1'/(10(4'1563%718
96&/%718/(01'(:&;7&<+((=8/<&'/
123
4(56#-78(.#%9&$'6%/(5&/$'6%/(9*8$#6:*8(';*(#*<"'6%/8;6.(:*'=**/(';*(>&"/'6'0(%5(<":%#
&8*9(6/(.#%9&$'6%/("/9(';*(>&"/'6'0(%5(%&'.&'(5#%-(.#%9&$'6%/2((?;*(-"#@6/"<(.#%9&$'
%5(<":%#(68(';*(6/$#*"8*(6/(';*("-%&/'(%5(%&'.&'(5#%-("/("996'6%/"<(&/6'(%5(<":%#2((?;&8
';*(-"#@6/"<(.#%9&$'(%5(<":%#(9*.*/98(96#*$'<0(%/(';*(.#%9&$'6%/(5&/$'6%/2
323
?;*(A"<&*(%5(';*(-"#@6/"<(.#%9&$'(%5(<":%#(68(';*(-"#@6/"<(.#%9&$'(%5(<":%#(-&<'6.<6*9
:0(';*(-"#B*'(.#6$*(%5(';*(%&'.&'2
C23
4($%-.*'6'6A*D(.#%56'E-"F6-6G6/@(56#-(;6#*8(=%#B*#8(&.('%(';*(.%6/'(=;*#*(';*(A"<&*(%5
';*(-"#@6/"<(.#%9&$'(%5(<":%#(*>&"<8(';*(="@*2((48("(#*8&<'D(';*(A"<&*E%5E-"#@6/"<E
.#%9&$'($&#A*(68(';*(<":%#E9*-"/9($&#A*2
H23
4(<"#@*(6--6@#"'6%/(=%&<9(6/$#*"8*(';*(8&..<0(%5(<":%#D(';&8(#*9&$6/@(';*(="@*2((I6';
-%#*(<":%#(=%#B6/@(=6';($".6'"<("/9(<"/9D(';*(-"#@6/"<(.#%9&$'(%5($".6'"<("/9(<"/9(68
;6@;*#D(8%(#*/'8(*"#/*9(:0(%=/*#8(%5(<"/9("/9($".6'"<(=%&<9(6/$#*"8*2
4'1>?&@/(#85(=$$?73#%718/+((=8/<&'/
"23
?;*(<"=(#*>&6#6/@(.*%.<*('%(*"'(%/*("..<*("(9"0(6/$#*"8*8(';*(9*-"/9(5%#
"..<*82((48(8;%=/(6/(J6@&#*(1KE1D(9*-"/9(8;65'8(5#%-(L ('%(L D(6/$#*"86/@(';*
.#6$*(5#%-(M ('%(M D("/9(6/$#*"86/@(>&"/'6'0(5#%-(N ('%(N 2
Price of Apples
123
Supply
P2
P1
D1
Q1 Q2
Quantity of Apples
!"#$%&#'()#"$*(+(,%-."/0
18-1
D2
O6/$*(';*(.#6$*(%5("..<*8(6/$#*"8*8D(';*(A"<&*(%5(-"#@6/"<(.#%9&$'(6/$#*"8*8(5%#
"/0(@6A*/(>&"/'6'0(%5(<":%#2((?;*#*78(/%($;"/@*(6/(';*(-"#@6/"<(.#%9&$'(%5(<":%#
5%#("/0(@6A*/(>&"/'6'0(%5(<":%#2((!%=*A*#D(86/$*(%&'.&'(6/$#*"8*8("8(56#-8(;6#*
-%#*(<":%#D(';*(-"#@6/"<(.#%9&$'(%5(<":%#(9*$#*"8*82
$2
48(J6@&#*(1KE3(8;%=8D(';*(6/$#*"8*(6/(';*(A"<&*(%5(-"#@6/"<(.#%9&$'(%5(<":%#
8;65'8(';*(9*-"/9($&#A*(%5(<":%#(5#%-(L ('%(L 2((?;*(*>&6<6:#6&-(>&"/'6'0(%5
<":%#(#68*8(5#%-(P ('%(P D("/9(';*(="@*(#68*8(5#%-(= ('%(= 2
Wage, Value of Marginal Product of Labor
:2
Supply
w2
w1
D2
D1
L2
L1
Quantity of Labor
32
!*/#0(J%#9(-"9*(';*(8'"'*-*/'(';"'(QR'(68(/%'(';*(*-.<%0*#(=;%(."08(="@*8EE;*(%/<0
;"/9<*8(';*(-%/*02((R'(68(';*(.#%9&$'(';"'(."08(="@*82Q((R/(';*(<"/@&"@*(%5(*$%/%-6$8D
;*(-*"/8(';"'(';*(9*-"/9(5%#(<":%#(68("(9*#6A*9(9*-"/92((I"@*8(9*.*/9(%/(';*(.#6$*(%5
';*(56/"<(.#%9&$'("/9(%/(';*(9*-"/9(5%#(';"'(.#%9&$'2
C2
"2
R5(,%/@#*88(=*#*('%(:&0(.*#8%/"<($%-.&'*#8(5%#("<<(4-*#6$"/($%<<*@*(8'&9*/'8D
';*(9*-"/9(5%#($%-.&'*#8(=%&<9(6/$#*"8*D(#"686/@(';*(.#6$*(%5($%-.&'*#8("/9
';&8(6/$#*"86/@(';*(A"<&*(%5(-"#@6/"<(.#%9&$'(%5(=%#B*#8(=;%(.#%9&$*
$%-.&'*#82((?;68(68(8;%=/(6/(J6@&#*(1KEC("8("(8;65'(6/(';*(9*-"/9($&#A*(5%#
<":%#(5#%-(L ('%(L 2((?;*(#*8&<'(68("/(6/$#*"8*(6/(';*(="@*(5#%-(= ('%(= ("/9("/
6/$#*"8*(6/(';*(>&"/'6'0(%5(<":%#(5#%-(P ('%(P 2
!"#$%&#'()#"$*(+(,%-."/0
18-2
Wage
Supply
w2
w1
D2
D1
L1
L2
Quantity of Labor
R5(-%#*($%<<*@*(8'&9*/'8(-"S%#(6/(*/@6/**#6/@("/9($%-.&'*#(8$6*/$*D(';*(8&..<0
%5(<":%#(6/(';*($%-.&'*#(6/9&8'#0(#68*82((?;68(68(8;%=/(6/(J6@&#*(1KEH("8("(8;65'
6/(';*(8&..<0($&#A*(5#%-(O ('%(O 2((?;*(#*8&<'(68("(9*$#*"8*(6/(';*(="@*(5#%-(=
'%(= ("/9("/(6/$#*"8*(6/(';*(>&"/'6'0(%5(<":%#(5#%-(P ('%(P 2
S1
S2
Wage
:2
w1
w2
Demand
L1
L2
Quantity of Labor
!"#$%&#'()#"$*(+(,%-."/0
18-3
$2
R5($%-.&'*#(56#-8(:&6<9(/*=(-"/&5"$'&#6/@(.<"/'8D(';68(6/$#*"8*8(';*(-"#@6/"<
.#%9&$'(%5(<":%#("/9(';*(A"<&*(%5(';*(-"#@6/"<(.#%9&$'(%5(<":%#(5%#("/0(@6A*/
>&"/'6'0(%5(<":%#2((?;68(68(8;%=/(6/(J6@&#*(1KET("8("(8;65'(6/(';*(9*-"/9($&#A*
5%#(<":%#(5#%-(L ('%(L 2((?;*(#*8&<'(68("/(6/$#*"8*(6/(';*(="@*(5#%-(= ('%(=
"/9("/(6/$#*"8*(6/(';*(>&"/'6'0(%5(<":%#(5#%-(P ('%(P 2
Wage
Supply
w2
w1
D2
D1
L2
L1
Quantity of Labor
H2
4(.#%56'E-"F6-6G6/@(56#-(B**.8("996/@(-%#*(%5("(5"$'%#(%5(.#%9&$'6%/(&/'6<(';*(5"$'%#78
A"<&*(%5(-"#@6/"<(.#%9&$'(*>&"<8(6'8(.#6$*D(#"';*#(';"/(;6#6/@("(8-"<<*#("-%&/'(';"'
=%&<9(;"A*("(-&$;(;6@;*#(A"<&*(%5(-"#@6/"<(.#%9&$'2((R'(9%*8(8%(:*$"&8*(';*(6/$#*"8*
6/(.#%56'(5#%-(;6#6/@(%/*("996'6%/"<(&/6'(%5(';*(5"$'%#(%5(.#%9&$'6%/(68(*>&"<('%(';*(A"<&*
%5(-"#@6/"<(.#%9&$'(%5(';*(5"$'%#(-6/&8(';*(.#6$*(%5(';*(5"$'%#2((O%D("8(<%/@("8(';*(A"<&*
%5(-"#@6/"<(.#%9&$'(%5(';*(5"$'%#(*F$**98(';*(.#6$*(%5(';*(5"$'%#D(';*(56#-(8;%&<9(B**.
6/$#*"86/@(';*(>&"/'6'0(%5(';*(5"$'%#(:*$"&8*(6'8(.#%56'(=6<<(#68*2((48(';*(56#-(6/$#*"8*8
';*(>&"/'6'0(%5(';*(5"$'%#D(;%=*A*#D(';*(A"<&*(%5(';*(-"#@6/"<(.#%9&$'(%5(';*(5"$'%#(=6<<
9*$<6/*D(&/'6<(6'(*>&"<8(';*(.#6$*2((4'(';"'(.%6/'D(';*(56#-(8;%&<9/7'("99("/0(-%#*(&/6'8
%5(';*(5"$'%#D(%#(*<8*(6'8(.#%56'8(=6<<(9*$<6/*2
T2
O6/$*(0%&#(&/$<*(68(-"F6-6G6/@(;68(.#%56'D(;*(-&8'(:*(;6#6/@(=%#B*#8(8&$;(';"'(';*6#
="@*(*>&"<8(';*(A"<&*(%5(';*6#(-"#@6/"<(.#%9&$'2((O6/$*(';*(="@*(68(UV(.*#(;%&#D(';*6#
A"<&*(%5(-"#@6/"<(.#%9&$'(-&8'(:*(UV(.*#(;%&#2((O6/$*(';*(A"<&*(%5(-"#@6/"<(.#%9&$'
*>&"<8(';*(-"#@6/"<(.#%9&$'('6-*8(';*(.#6$*(%5(';*(@%%9D("/9(86/$*(';*(.#6$*(%5("
8"/9=6$;(68(UCD(';*(-"#@6/"<(.#%9&$'(%5("(=%#B*#(-&8'(:*(3(8"/9=6$;*8(.*#(;%&#2
!"#$%&#'()#"$*(+(,%-."/0
18-4
"2
J6@&#*(1KEV(8;%=8(';*(W2O2($".6'"<(-"#B*'(=;*/(';*#*78("/(6/5<%=(%5($".6'"<
5#%-(":#%"92((?;*(6/5<%=(%5($".6'"<(8;65'8(';*(8&..<0($&#A*('%(';*(#6@;'D(5#%-(O
'%(O 2((?;*(#*8&<'(68("(#*9&$'6%/(6/(';*(#*/'"<(#"'*(%/($".6'"<(5#%-(# ('%(# ("/9("/
6/$#*"8*(6/(';*(>&"/'6'0(%5($".6'"<(5#%-(X ('%(X 2
Rental Price of Capital
S1
S2
r1
r2
Demand
K 1 K2
Quantity of Capital
:2
?;*(6/$#*"8*(6/($".6'"<(6/$#*"8*8(';*(-"#@6/"<(.#%9&$'(%5(<":%#("/9(';*(A"<&*(%5
-"#@6/"<(.#%9&$'(%5(<":%#(5%#("/0(@6A*/(>&"/'6'0(%5(<":%#2((J6@&#*(1KEY(8;%=8
';68("8("(8;65'(6/(';*(9*-"/9(5%#(<":%#(5#%-(L ('%(L 2((48("(#*8&<'D(';*(="@*(#"'*
#68*8(5#%-(= ('%(= ("/9(';*(>&"/'6'0(%5(<":%#(#68*8(5#%-(P ('%(P 2
Supply
Wage
V2
w2
w1
D2
D1
L1 L2
Quantity of Labor
!"#$%&#'()#"$*(+(,%-."/0
18-5
?;*(5%<<%=6/@('":<*(8;%=8(';*(-"#@6/"<(.#%9&$'(%5(<":%#("/9(';*(A"<&*(%5(';*(-"#@6/"<
.#%9&$'(%5(<":%#Z
P
(]
1
3
\[MP
Y]
V]
V]
V]
C]
1]
1C
1^
3T
3K
[MP
(Y
3^
J6@&#*(1KEK(.<%'8(';*(56#-78(9*-"/9(5%#(<":%#2((O6/$*(';*(="@*(68(UT](.*#(9"0D(';*(56#8;%&<9(;6#*(5%&#(=%#B*#82((J%#(*"$;(%5(';*(56#8'(5%&#(=%#B*#8D(';*(A"<&*(%5(';*(-"#@6/"<
.#%9&$'(%5(<":%#(*F$**98(';*(="@*2(()&'(5%#(-%#*(';"/(5%&#(=%#B*#8D(';*(A"<&*(%5(';*
-"#@6/"<(.#%9&$'(68(<*88(';"/(';*(="@*2((O%(';*(56#-(-"F6-6G*8(.#%56'(:0(;6#6/@(5%&#
=%#B*#82
Wage, Value of Marginal Product of Labor
Y2
70
60
Wage
50
40
30
20
VMPL
10
1
2
3
4
5
Quantity of Labor
!"#$%&#'()#"$*(+(,%-."/0
18-6
"2
R5("(56#-("<#*"90(@6A*8(=%#B*#8(5#6/@*(:*/*56'8(A"<&*9("'(-%#*(';"/(UCD(';*(/*=
<"=(=%&<9(;"A*(/%(*55*$'2(()&'("(56#-(';"'($&##*/'<0(;"8(5#6/@*(:*/*56'8(<*88(';"/
UC(=%&<9(:*("55*$'*9(:0(';*(<"=2((R-"@6/*("(56#-(';"'($&##*/'<0(."08(/%(5#6/@*
:*/*56'8("'("<<2((?;*(#*>&6#*-*/'(';"'(6'(."0(5#6/@*(:*/*56'8(%5(UC(#*9&$*8(';*
A"<&*(%5(-"#@6/"<(.#%9&$'(%5(<":%#(*55*$'6A*<0(:0(UC(6/('*#-8(%5(';*($"8;(="@*
';*(56#-(68(=6<<6/@('%(."02((?;68(68(8;%=/(6/(J6@&#*(1KE^("8("(9%=/="#9(8;65'(6/
';*(56#-78(9*-"/9(5%#(<":%#(5#%-(L ('%(L D("(8;65'(9%=/(%5(*F"$'<0(UC2((
Supply
Wage
K2
w1
w2
w1$3
D1
D2
L2 L1
Quantity of Labor
:2
O6/$*(';*(8&..<0($&#A*(;"8("(.%86'6A*(:&'(56/6'*(8<%.*D(';*(/*=(*>&6<6:#6&-(=6<<
:*(%/*(6/(=;6$;(';*(/*=(="@*D(= D(68(<*88(';"/(';*(%<9(="@*D(= D(:&'(= (_(= (E
UC2((?;*(>&"/'6'0(%5(<":%#("<8%(9*$<6/*82
R5(';*(<":%#(8&..<0($&#A*(68(A*#'6$"<D(';*/(= (=%&<9(*>&"<(= (E(UCD("/9(';*#*
=%&<9(:*(/%($;"/@*(6/(';*(>&"/'6'0(%5(<":%#2
$2
?;*(.#*$*96/@("/"<0868(68(6/$%-.<*'*D(%5($%&#8*D(:*$"&8*(6'(6@/%#*8(';*(5"$'(';"'
';*(5#6/@*(:*/*56'8("#*(A"<&":<*('%(=%#B*#82((48("(#*8&<'D(';*(8&..<0($&#A*(%5
<":%#(=6<<(6/$#*"8*D(8;%=/("8("(8;65'('%(';*(#6@;'(6/(';*(8&..<0(%5(<":%#(6/(J6@&#*
1KE1]2((R/(@*/*#"<D(=%#B*#8(=%&<9(.#*5*#($"8;('%(8.*$656$(:*/*56'8D(8%(';*
-"/9"'*9(5#6/@*(:*/*56'8("#*/7'(=%#';("8(-&$;("8($"8;(=%&<9(:*2(()&'(6/(';*
$"8*(%5(5#6/@*(:*/*56'8(';*#*("#*('=%(%558*''6/@("9A"/'"@*8Z((`1a(5#6/@*(:*/*56'8
"#*/7'('"F*9b("/9(`3a(56#-8(%55*#($;*".*#(.#%A686%/(%5(;*"<';($"#*(';"/(=%#B*#8
$%&<9(.&#$;"8*(%/(';*6#(%=/2((O%(=;*';*#(';*(5#6/@*(:*/*56'8("#*(=%#';(-%#*(%#
<*88(';"/(UC(9*.*/98(%/(=;6$;(%5(';*8*(*55*$'8(9%-6/"'*82((
!"#$%&#'()#"$*(+(,%-."/0
18-7
J6@&#*(1KE1](68(9#"=/(&/9*#(';*("88&-.'6%/(';"'(';*(5#6/@*(:*/*56'8("#*(=%#';
-%#*(';"/(UC('%(';*(=%#B*#82((R/(';68($"8*D(';*(/*=(="@*D(= D(68(<*88(';"/(= (E
UC("/9(';*(>&"/'6'0(%5(<":%#(6/$#*"8*8(5#%-(P ('%(P 2
R5(';*(8;65'(6/(';*(8&..<0($&#A*(=*#*(';*(8"-*("8(';*(8;65'(6/(';*(9*-"/9($&#A*D
';*/(= (c(= (E(UC("/9(';*(>&"/'6'0(%5(<":%#(#*-"6/8(&/$;"/@*92
R5(';*(8;65'(6/(';*(8&..<0($&#A*(=*#*(<*88(';"/(';*(8;65'(6/(';*(9*-"/9($&#A*D(';*/
= (_(= (E(UC("/9(';*(>&"/'6'0(%5(<":%#(9*$#*"8*82
R/("<<(';#**($"8*8(';*#*78("(<%=*#(="@*("/9(;6@;*#(>&"/'6'0(%5(<":%#(';"/(65(';*
8&..<0($&#A*(=*#*(&/$;"/@*92
O6/$*("(-6/6-&-E="@*(<"=(=%&<9/7'("<<%=(';*(="@*('%(9*$<6/*(=;*/(@#*"'*#
5#6/@*(:*/*56'8("#*(-"/9"'*9D(6'(=%&<9(<*"9('%(6/$#*"8*9(&/*-.<%0-*/'D(:*$"&8*
56#-8(=%&<9(#*5&8*('%(."0(=%#B*#8(-%#*(';"/(';*(A"<&*(%5(';*6#(-"#@6/"<
.#%9&$'2
S1
S2
Wage
92
w1
w1$3
w2
D2
L1 L2
Quantity of Labor
!"#$%&#'()#"$*(+(,%-."/0
18-8
D1
^2
"2
4(&/6%/(68(<6B*("(-%/%.%<0(56#-(6/(';"'(6'(68(';*(%/<0(8&..<6*#(%5(<":%#D(S&8'("8("
-%/%.%<0(68(';*(%/<0(8&..<6*#(%5(';*(@%%92
:2
d&8'("8("(-%/%.%<0(56#-(="/'8('%(-"F6-6G*(.#%56'8D("(<":%#(&/6%/(-"0(=68;('%
-"F6-6G*(';*(<":%#(6/$%-*(%5(6'8(-*-:*#82
$2
d&8'("8(';*(-%/%.%<0(.#6$*(*F$**98(';*($%-.*'6'6A*(.#6$*(6/(';*(-"#B*'(5%#("
@%%9D(';*(&/6%/(="@*(*F$**98(';*(5#**E-"#B*'(="@*(6/(';*(-"#B*'(5%#(<":%#2(
4/9(S&8'("8(';*(>&"/'6'0(%5(%&'.&'(%5("(-%/%.%<0(68(<*88(';"/(';*(>&"/'6'0
.#%9&$*9(:0("($%-.*'6'6A*(6/9&8'#0D(*-.<%0-*/'(:0("(&/6%/6G*9(56#-(68(<*88
';"/(*-.<%0-*/'(:0("(/%/E&/6%/6G*9(56#-D(86/$*(';*(&/6%/(="@*(68(;6@;*#2
92
W/6%/8(-6@;'(=68;('%(-"F6-6G*('%'"<(<":%#(6/$%-*(%5(';*6#(-*-:*#8D(%#(';*0
-6@;'(="/'(';*(;6@;*8'(="@*(.%886:<*D(%#(';*0(-6@;'(=68;('%(;"A*(';*(@#*"'*8'
*-.<%0-*/'(.%886:<*2((R/("996'6%/D(';*0(-"0(=68;('%(;"A*(6-.#%A*9(=%#B6/@
$%/96'6%/8D(6/$#*"8*9(5#6/@*(:*/*56'8D(%#(6/.&'(6/'%("(56#-78(9*$686%/82
!"#$%&#'()#"$*(+(,%-."/0
18-9
!"#$%&'()*+((,#'-.-/0(#-1(2.03'.4.-#%.567&0%.5-0(85'(9&:.&;+((<-0;&'0
12
,%"3(-4/*#5(6*'(."47(-%#*('8"/(%'8*#(9%#:*#5(94'8(54-43"#("-%&/'5(%;(*7&$"'4%/2(
<8*4#(8468*#(9"6*($%-.*/5"'*5('8*-(;%#('8*(74#'0("/7(7"/6*#%&5(/"'&#*(%;($%"3(-4/4/6=
"5(9*33("5('8*4#(3%/6>'*#-(8*"3'8(.#%?3*-52((@5("(#*5&3'=('8*0(*"#/("(54A"?3*
$%-.*/5"'4/6(74;;*#*/'4"32
B2
C7&$"'4%/(45("('0.*(%;($".4'"3(?*$"&5*(4'(#*.#*5*/'5("/(*D.*/74'&#*(%;(#*5%&#$*5("'(%/*
.%4/'(4/('4-*('%(#"45*(.#%7&$'4E4'0(4/('8*(;&'&#*2
F2
C7&$"'4%/(-468'(#"45*("(9%#:*#G5(9"6*(94'8%&'(#"454/6('8*(9%#:*#G5(.#%7&$'4E4'0(4;
*7&$"'4%/(.#%E47*5("(546/"3('8"'('8*(9%#:*#(8"5(8468("?434'02
H2
I*$474/6(98*'8*#("(6#%&.(%;(9%#:*#5(8"5("(3%9*#(9"6*(?*$"&5*(%;(745$#4-4/"'4%/(45
74;;4$&3'(?*$"&5*(.*%.3*(74;;*#(4/(%'8*#("''#4?&'*5=(5&$8("5('8*("-%&/'(%;(*7&$"'4%/('8*0
8"E*=('8*("-%&/'(%;(*D.*#4*/$*('8*0(8"E*=("/7('8*(.%554?434'0(%;($%-.*/5"'4/6
74;;*#*/'4"352
J2
<8*(;%#$*5(%;(*$%/%-4$($%-.*'4'4%/('*/7('%("-*34%#"'*(745$#4-4/"'4%/(%/('8*(?"545(%;
#"$*=(54/$*(?&54/*55(%9/*#5(98%($"#*(%/30("?%&'(-":4/6(-%/*0("#*("'("/("7E"/'"6*
98*/($%-.*'4/6("6"4/5'('8%5*(98%("35%($"#*("?%&'(745$#4-4/"'4/62
K2
I45$#4-4/"'4%/($"/(.*#545'(4/("($%-.*'4'4E*(-"#:*'(4;($&5'%-*#5(8"E*("(.#*;*#*/$*(;%#
745$#4-4/"'4%/2((L%#(*D"-.3*=(4;($&5'%-*#5(.#*;*#(?3%/7*(9"4'*#5('%(?#&/*''*5=
#*5'"&#"/'5(9433(.#*;*#('%(84#*(?3%/7*(9"4'*#5("/7('8*0(9433(745$#4-4/"'*("6"4/5'
?#&/*''*52
='5>?&40(#-1(<$$?.3#%.5-0+((<-0;&'0
12
"2
<8*(%..%#'&/4'0($%5'(%;('":4/6("(M%?("5("(5&--*#(4/'*#/('8"'(."05(34''3*(%#
/%'84/6(45('8"'("(.*#5%/($%&37(-":*(8468*#(9"6*5("'("(74;;*#*/'(M%?2
?2
I*5.4'*('8*(3%9(9"6*5=(5'&7*/'5("#*(94334/6('%('":*(4/'*#/584.5(?*$"&5*("/
4/'*#/584.(-468'(8*3.('8*-(3"/7("(.*#-"/*/'(M%?(94'8('8*(;4#-(%#('8*
6%E*#/-*/'(3"'*#2((@35%=('8*(4/'*#/584.(*/8"/$*5('8*(5'&7*/'G5(#*5&-*2((L4/"330=
'8*(5'&7*/'(-"0(6"4/(E"3&"?3*(%/>'8*>M%?('#"4/4/62
!"#$%&#'()#"$*(+(,%-."/0
19-1
$2
N%&(9%&37(*D.*$'('8"'(5'&7*/'5(98%(9*#*(4/'*#/5(-":*(8468*#(4/$%-*5(3"'*#(4/
34;*2
B2
<8*(54/63*(-4/4-&-(9"6*(-468'(745'%#'('8*(3"?%#(-"#:*'(;%#('**/"6*(9%#:*#5(-%#*
'8"/(;%#("7&3'(9%#:*#5(?*$"&5*O((P1Q('**/"6*#5(8"E*("(3%9*#(E"3&*(%;(-"#64/"3(.#%7&$'=
5%(4'G5(-%#*(34:*30('8"'('8*(-4/4-&-(9"6*(9433(?*("?%E*('8*4#(E"3&*(%;(-"#64/"3
.#%7&$'R("/7(PBQ('8*(7*-"/7(;%#('**/"6*(3"?%#(45(-%#*(*3"5'4$('8"/(;%#("7&3'(3"?%#=(5%
'8*(-4/4-&->9"6*(3"9(745'%#'5('8*(-"#:*'(-%#*2
F2
S*%.3*(94'8(-%#*(*D.*#4*/$*(&5&"330(8"E*(8"7(-%#*(%/>'8*>M%?('#"4/4/6('8"/(%'8*#5(94'8
'8*(5"-*(;%#-"3(*7&$"'4%/(?&'(3*55(*D.*#4*/$*2((T&$8('#"4/4/6(4/$#*"5*5('8*(E"3&*(%;('8*
-"#64/"3(.#%7&$'(%;('8*4#(3"?%#2((U%?('*/&#*(45("35%(E"3&"?3*=(54/$*(.*%.3*(6"4/(M%?>
5.*$4;4$(:/%93*76*(%#("(5.*$4"34A"'4%/(4/(:/%93*76*('8"'G5(&5*;&3('%('8*(;4#-2
H2
T4/$*('8*(7*-"/7(;%#($%33*6*>*7&$"'*7(9%#:*#5(4/$#*"5*7(;"4#30(5'*"7430(4/(?%'8('8*
1VWX5("/7(1VYX5=(0*'(9"6*5(9*#*(5'"6/"/'(4/('8*(1VWX5("/7(#%5*(4/('8*(1VYX5=('8*#*
-&5'(8"E*(?**/(74;;*#*/$*5(4/(5&..302((Z/('845($"5*=('8*#*(9"5("(6#*"'*#(4/$#*"5*(4/('8*
5&..30(%;($%33*6*>*7&$"'*7(9%#:*#5(4/('8*(1VWX5("/7('845(5&..30(584;'(:*.'(9"6*5(;#%#454/62((Z/('8*(1VYX5=(5&..30(747/G'(#45*("5(-&$8=(5%('8*(4/$#*"5*7(7*-"/7(3*7('%(#454/6
9"6*52
J2
)0('8*(E"3&*(%;(5:4335=(9*(-*"/('8*(6".(?*'9**/('8*(*"#/4/65(%;(5:433*7("/7(&/5:433*7
9%#:*#52((Z/(7*E*3%.4/6($%&/'#4*5=('8*#*("#*(#*3"'4E*30(;*9(5:433*7(9%#:*#5=(984$8
-*"/5('8*(E"3&*(%;(5:433*7(3"?%#(45(8468*#(#*3"'4E*('%('8*(E"3&*(%;(&/5:433*7(3"?%#("/7(45
'8&5(."47("(#*3"'4E*30(8468*#(9"6*2((<8*(5$"#$4'0(%;(5:433*7(9%#:*#5(-"0(8"E*("#45*/
?*$"&5*(7*E*3%.4/6($%&/'#4*5("#*/G'(9*"3'80(*/%&68('%(4/E*5'("5(-&$8(4/(8&-"/($".4'"32(
P[%'*=(8%9*E*#=('8"'(?*$"&5*(5:433*7(9%#:*#5(4/(7*E*3%.4/6($%&/'#4*5(9%#:(94'8(3*55
$".4'"3('8"/(5:433*7(9%#:*#5(4/(4/7&5'#4"34A*7($%&/'#4*5=(5:433*7(9%#:*#5(4/(7*E*3%.4/6
$%&/'#4*5("#*(34:*30('%(8"E*(3%9*#(*"#/4/65('8"/(5:433*7(9%#:*#5(4/(4/7&5'#4"34A*7
$%&/'#4*52Q
K2
<8*(4/$#*"5*7('#"4/4/6(;%#(&/5:433*7(9%#:*#5(9%&37(#*7&$*('8*(5&..30(%;(&/5:433*7
9%#:*#5("/7(4/$#*"5*('8*(5&..30(%;(5:433*7(9%#:*#5=("5(L46&#*(1V>1(58%952((Z/('8*(3*;'
."/*3=('8*(#*7&$*7(5&..30(%;(&/5:433*7(9%#:*#5(4/$#*"5*5('8*(9"6*5(%;(&/5:433*7
9%#:*#52((<8*(4/$#*"5*(4/(5&..30(%;(5:433*7(9%#:*#5(#*7&$*5('8*4#(9"6*2((@5("(#*5&3'=
4/$%-*(4/*\&"34'0(7*$34/*52
!"#$%&#'()#"$*(+(,%-."/0
19-2
Unskilled Labor
S1
S2
Skilled Labor
Wage
S1
Wage
S2
Demand
Quantity
W2
Demand
Quantity
"2
C$%/%-4$5(.#%;*55%#5(-"0(#*$*4E*(8468*#(5"3"#4*5('8"/(.#%;*55%#5(4/(5%-*(%'8*#
;4*375(?*$"&5*('8*0(8"E*(?*''*#(%..%#'&/4'4*5(%&'547*("$"7*-4"2((L%#(*D"-.3*=
'8*0($%&37(;4/7(M%?5(4/('8*(.#4E"'*(5*$'%#(%#('8*(6%E*#/-*/'2((
?2
I4;;*#*/$*5(4/('*"$84/6(3%"75($"/(-":*(&.(;%#(3%9*#(."02((Z;(.#%;*55%#5(4/("33
;4*375("#*(."47('8*(5"-*=('8*(."0(3*E*3(45(.#%?"?30(?*3%9(98"'(*$%/%-4$5
.#%;*55%#5($%&37(*"#/(*35*98*#*2((<%("''#"$'(*$%/%-4$5(.#%;*55%#5=('8*
&/4E*#54'0(9%&37(8"E*('%(%;;*#('8*-(5%-*(%'8*#($%-.*/5"'4%/=(5&$8("5("(3%9*#
'*"$84/6(3%"72
Y2
<8*(7*E*3%.-*/'(%;(#*$%#74/6(7*E4$*5(3*7('%("(5&.*#5'"#(.8*/%-*/%/(4/(984$8('8*(?*5'
-&54$4"/5(9*#*(."47(546/4;4$"/'30(-%#*('8"/("E*#"6*(-&54$4"/52((T%('8*(4/$%-*(%;('8*
?*5'(-&54$4"/5(#%5*("/7('8*(4/$%-*(%;('8*("E*#"6*(-&54$4"/(;*332
V2
N%&(-468'($3"4-('8"'(@3"/(45(7*5.4$"?3*(?*$"&5*(8*(45(745$#4-4/"'4/6("6"4/5'(9%-*/2(
T%-*(-468'($3"4-('8"'(@3"/(9"5("7-4#"?3*=('8%&68=(54/$*(8*(45(-"D4-4A4/6(.#%;4'("/7
64E4/6(9%-*/("(?*''*#(%..%#'&/4'0('%(;4/7("(M%?2((Z;(-%#*(*-.3%0*#5(9*#*(34:*(@3"/=('8*
9"6*(74;;*#*/'4"3(?*'9**/(-*/("/7(9%-*/(9%&37(58#4/:=("5(*-.3%0*#5(9%&37(?*
$%-.*'4/6(;%#(9%-*/(9%#:*#5=(5%(9%-*/(9%&37(8"E*("5(-"/0(M%?(%.'4%/5("5(-*/2(
]3'4-"'*30=('8*(9"6*(74;;*#*/'4"3($%&37(745"..*"#2((
1X2
CE*/(4;("33('8*(74;;*#*/$*(4/(*"#/4/65(?*'9**/(?3"$:(9%#:*#5("/7(984'*(9%#:*#5($%&37
?*("''#4?&'*7('%(74;;*#*/$*5(4/(0*"#5(%;(5$8%%34/6("/7(5$8%%3(\&"34'0=('8"'(9%&37(/%'
4-.30('8"'('8*#*(9"5(/%(745$#4-4/"'4%/2((<8*#*($%&37(?*(745$#4-4/"'4%/(4/(5$8%%3
\&"34'0=(;%#(*D"-.3*=(94'8(?3"$:(5'&7*/'5(?*4/6(5*/'('%(5$8%%35(%;(3%9*#(\&"34'02((<8%5*
5$8%%35(-468'(6*'(;*9*#('"D(7%33"#5(?*$"&5*(%;(745$#4-4/"'4%/=(5%(9%&37(?*(%;(3%9*#
\&"34'02((Z/("774'4%/=(?3"$:($8437#*/($%&37(?*(745$%&#"6*7(;#%-("''*/74/6(5$8%%3(%#
6%4/6(%/('%($%33*6*2
!"#$%&#'()#"$*(+(,%-."/0
19-3
112
Z'G5(.#*''0(74;;4$&3'('%(745$#4-4/"'*("6"4/5'(.*%.3*(94'8%&'(5**4/6(5%-*($8"#"$'*#45'4$(%;
'8*4#5('8"'(0%&(7%/G'(34:*2((Z'G5(.%554?3*('%(745$#4-4/"'*("6"4/5'('8*('0.*(%;(.*#5%/(98%
5*#E*5(0%&("(-*"3(4/("(#*5'"&#"/'(?*$"&5*(0%&($"/(5**(84-(%#(8*#2(()&'(0%&($"/G'
745$#4-4/"'*("6"4/5'(.*%.3*(98%(-":*(-"/&;"$'&#*7(6%%75('8"'("#*(5%37(4/(#*'"43(5'%#*5
?*$"&5*(0%&($"/G'(%?5*#E*(98%G5(.#%7&$4/6('8*(6%%752
1B2
"2
L46&#*(1V>B(58%95("(54'&"'4%/(4/(984$8(0%&/6(9%-*/("#*($8"//*33*7(4/'%
$"#**#5("5(5*$#*'"#4*5=(/&#5*5=("/7('*"$8*#52((<8*(3*;'(."/*3(58%95('8*(3"?%#
-"#:*'(;%#(5*$#*'"#4*5=(/&#5*5=("/7('*"$8*#5=("/7('8*(#468'(."/*3(58%95('8*(3"?%#
-"#:*'(;%#(%'8*#(;4*3752((<8*(5&..30(%;(.*%.3*(4/('8*(5*$#*'"#4"3=(/&#54/6=("/7
'*"$84/6(;4*375(7*.#*55*5('8*(9"6*(4/('8%5*(;4*375(#*3"'4E*('%(%'8*#(;4*3752
?2
Ê*#('4-*=(4;(?%'8(-*/("/7(9%-*/(.&#5&*(-%#*(E"#4*7(;4*375(%;(9%#:=('8*
9"6*5("$#%55(;4*375(58%&37(*\&"34A*2((<8*("E*#"6*(9"6*5(%;(-*/(58%&37(7*$34/*
#*3"'4E*('%('8*("E*#"6*(9"6*5(%;(9%-*/2
Secretaries, Nurses,
Teachers
Other Fields
Supply
Wage
Wage
Supply
Demand
Quantity of Labor
Demand
Quantity of Labor
!"#$%&#'()#"$*(+(,%-."/0
19-4
1F2
)0('8*(_."''*#/_(%;(-"#:*'(9%#:=(^G[*433(-*"/5('8"'(-"/0(9%-*/(7#%.(%&'(%;('8*
3"?%#(;%#$*(;%#(5*E*#"3(0*"#5('%(5'"#'(;"-434*5("/7('%($"#*(;%#('8*4#($8437#*/(98*/('8*0
"#*(0%&/62((<845(-*"/5('8*0(8"E*(3*55(*D.*#4*/$*("/7(M%?('*/&#*=(%/("E*#"6*=('8"/(-*/
%;('8*(5"-*("6*("/7(*7&$"'4%/2((,%/5*\&*/'30=('8*0("#*(."47(3*552
1H2
Z;(?#&/*''*(9%#:*#5(7%/G'(34:*(9%#:4/6(94'8(?3%/7*(9%#:*#5=("(?3%/7*(9%#:*#G5
-"#64/"3(.#%7&$'(%;(3"?%#(45(34:*30('%(?*(3%9*#=(54/$*('8*(;4#-G5(%&'.&'(9%/G'(?*("5(8468
$%-."#*7('%('8*($"5*(4;('8*(;4#-(8"7("(?#&/*''*(9%#:*#(4/5'*"72((<8&5(;4#-5(-468'(;4/7
'8"'(?3%/7*(9%#:*#5(9*#*/G'(9%#'8("5(-&$8("/7(9%&37(#*7&$*('8*4#(9"6*5(#*3"'4E*('%
?#&/*''*(9%#:*#52((@(.#%;4'>-"D4-4A4/6(*/'#*.#*/*&#($%&37($#*"'*("(;4#-(&54/6("33
?3%/7*(9%#:*#5=(5%('8*#*(9%&37(?*(/%(;#4$'4%/5(?*'9**/(?#&/*''*("/7(?3%/7*(9%#:*#52(
Z;('8*#*(9*#*(-"/0(5&$8(*/'#*.#*/*&#5=(%E*#('4-*('8*(9"6*(74;;*#*/'4"3(?*'9**/
?#&/*''*("/7(?3%/7*(9%#:*#5(9%&37(745"..*"#2((
!"#$%&#'()#"$*(+(,%-."/0
19-5
!"#$%&'()*+((,"&(-./%'.01%.23(24(53627&
81&/%.23/(42'(9&:.&;+((<3/;&'/
12
34*(#5$4*6'(757'4(%7('4*(8292(.%.&:"'5%/(*"#/6(";%&'('*/('5-*6("6(-&$4(5/$%-*("6('4*
.%%#*6'(757'42
<2
34*(-%6'(:5=*:0(>#%&.6('%(:5?*(5/(.%?*#'0("#*(;:"$=6("/@(!56."/5$6A($45:@#*/A("/@
7"-5:5*6(4*"@*@(;0("(7*-":*("@&:'(B5'4%&'("(4&6;"/@(.#*6*/'2
C2
95/$*(.*%.:*(-"0(4"?*('*-.%#"#5:0(45>4(%#(:%B(5/$%-*("/@(65/$*(5/$%-*(?"#5*6(%?*#
'4*(:57*($0$:*(D.*%.:*E6(5/$%-*6("#*(:%B*#(B4*/(0%&/>("/@(45>4*#(B4*/(%:@*#FA("//&":
5/$%-*(@%*6/E'(#*.#*6*/'('#&*(5/*G&":5'0(5/(:5?5/>(6'"/@"#@62
H2
I(&'5:5'"#5"/(B%&:@(:5=*(*?*#0%/*('%(4"?*(*G&":(5/$%-*6A(;&'(B%&:@(#*$%>/5J*('4"'
#*@56'#5;&'5/>(5/$%-*(@56'%#'6(5/$*/'5?*6A(6%(B%&:@(.#%$**@(%/:0(."#'(B"0('%('4"'(>%":2(
I(:5;*#":(B%&:@(>%(7&#'4*#('4"/("(&'5:5'"#5"/(5/(*G&":5J5/>(5/$%-*6A(65/$*("(:5;*#":(B%&:@
7%$&6(%/(4%B(B*::(%77(56('4*(B%#6'K%77(.*#6%/(5/(6%$5*'02((I(:5;*#'"#5"/(B%&:@(/%'($"#*
";%&'(*G&":5J5/>(5/$%-*6("'("::("6(:%/>("6('4*(.#%$*66(%7(>*''5/>(5/$%-*(56(7"5#2
L2
M/K=5/@('#"/67*#6("#*(;*/*75$5":(;*$"&6*('4*0(*/6&#*('4"'('4*(.%%#(>*'(B4"'('4*0(/**@
-%6'2((M/(."#'5$&:"#A('4*0(>*'(7%%@("/@(64*:'*#(5/6'*"@(%7(":$%4%:("/@(@#&>62(()&'(5/K=5/@
'#"/67*#6("#*/E'("6(;*/*75$5":('%('4*(#*$5.5*/'6("6($"64(;*$"&6*('4*0(.#%?5@*(/%
%..%#'&/5'0(7%#(6&;6'5'&'5%/(5/'%(-%#*(45>4:0(?":&*@(>%%@62((34*(.%%#("#*(5/('4*(;*6'
.%65'5%/('%(=/%B(B4"'('4*0(/**@2
='20>&7/(#3?(<$$>.6#%.23/+((<3/;&'/
12
34*(7"$'%#6($%/'#5;&'5/>('%('4*(5/$#*"6*(5/(5/$%-*(5/*G&":5'0(5/('4*(8/5'*@(9'"'*6(@&#5/>
'4*(."6'(<N(0*"#6("#*('4*(;#*"=&.(%7(7"-5:5*6A(-"=5/>(.%%#(7"-5:5*6(*?*/(.%%#*#A("/@
'4*(5/$#*"6*(5/('4*(/&-;*#(%7('B%K$"#**#(7"-5:5*6A(-"=5/>(#5$4(7"-5:5*6(*?*/(#5$4*#2
<2
34*(5/$%-*(#*$*5?*@(;0('4*('%.(757'4(%7('4*(.%.&:"'5%/(B"6(*6.*$5"::0(45>4(5/(1OCL
;*$"&6*(5/('4*(-5@@:*(%7('4*(P#*"'(Q*.#*665%/(-"/0(.*%.:*(B*#*(&/*-.:%0*@2((I6("
#*6&:'A(/"'5%/":(5/$%-*(7*::(64"#.:02((R*%.:*(B5'4(45>4(5/$%-*6(B4%(=*.'('4*5#(S%;6('4&6
*"#/*@("(6&;6'"/'5"::0(45>4*#(.#%.%#'5%/(%7(/"'5%/":(5/$%-*2
C2
34*(.*#$*/'">*(%7($45:@#*/(5/(7"-5:5*6(B5'4(5/$%-*(;*:%B('4*(.%?*#'0(:5/*(56(":-%6'
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20-1
6&..%#'6('4*(*:@*#:0(G&5'*(B*::A(;&'('4*(ITQ,(DI5@(7%#(T"-5:5*6(B5'4(Q*.*/@*/'
,45:@#*/F(.#%>#"-(4"6(;"@(5/$*/'5?*(*77*$'6('4"'('*/@('%(=**.(7"-5:5*6(7#%-(B%#=5/>
'4*5#(B"0(%&'(%7(.%?*#'02
H2
9'&@*/'6E($&##*/'(5/$%-*6("#*(6&;6'"/'5"::0(:*66('4"/('4*5#(.*#-"/*/'(5/$%-*6A(6%
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/%B(%#(;*(6&..%#'*@(;0('4*5#(."#*/'6A(;&'('4*5#($%::*>*(*@&$"'5%/(B5::(."0(%77(B5'4
45>4*#(7&'&#*(5/$%-*2
L2
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#56=(%7(@*7"&:'(-"0(-"=*(5'(4"#@(7%#('4*-('%(>*'(:%"/6(%#('4*#*(-"0(;*("(45>4*#
5/'*#*6'(#"'*(B4*/('4*0(;%##%B('4"/('4*(5/'*#*6'(#"'*(B4*/('4*0(:*/@2
;2
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"2
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5/6'*"@(%7(B*:7"#*(D'%(4*:.('4*(.%%#(5/$#*"6*('4*5#(5/$%-*6F2
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%7(X<N(*"$42((,%--&/5'0(<(4"6('*/(7"-5:5*6(B5'4(5/$%-*(%7(X<NN(*"$4("/@('*/(7"-5:5*6
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#5$4(4"?*(/*"#:0('*/('5-*6('4*(5/$%-*(%7('4*(.%%#A(B45:*(5/($%--&/5'0(1('4*(#5$4
4"?*(%/:0(75?*('5-*6('4*(5/$%-*(%7('4*(.%%#2((!%B*?*#A('4*(.#%;:*-(%7(.%?*#'0
56(:5=*:0('%(;*(6:5>4':0(B%#6*(5/($%--&/5'0(1A(65/$*('4*(.%%#(4"?*(:%B*#(5/$%-*2
;2
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%77(7"-5:0(4"6(-%#*(5/$%-*('4"/(5/($%--&/5'0(12
!"#$%&#'()#"$*(+(,%-."/0
20-2
[2
O2
$2
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'4%&>4(5/*G&":5'0(56(>#*"'*#2
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:";%#(6&..:0(56(*:"6'5$A(6%('4"'(#*@56'#5;&'5?*('"V*6(#*@&$*(:";%#(6&..:02
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Q*-%$#"'62((I6("(#*6&:'A('4*0('45/=('4*(>%?*#/-*/'(64%&:@(@%(:*66(#*@56'#5;&'5%/
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112
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6.*/@("6(-&$4(%/(4*":'4($"#*2((M/6'*"@A('4*0E@(6&;6'5'&'*(7%#(%'4*#('45/>62
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20-3
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X1NANNN(:*"@6('%(45>4*#('"V*6(%7(XLANNN2((34*(-"V5-&-(5/$%-*("'(B45$4("
7"-5:0(#*$*5?*6(-%/*0(7#%-('4*(>%?*#/-*/'(56(X<NANNN2
$2
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@2
34*("@?"/'">*(%7('4*(75#6'('"V(6$4*@&:*(56('4"'('4*("7'*#K'"V(5/$%-*(@56'#5;&'5%/
B%&:@(;*(-%#*(*G&":2((34*("@?"/'">*(%7('4*(6*$%/@('"V(6$4*@&:*(56('4"'('4*
-"#>5/":('"V(#"'*(B%&:@(;*(:%B*#A(6%(5'(B%&:@/E'($"&6*("6(-&$4(%7("(@56'%#'5%/('%
:";%#(6&..:02
1C2
95/$*(_%4/(;*:5*?*6('4"'(:";%#(6&..:0(56(45>4:0(*:"6'5$A(4*(B5::(B"/'(:*66(#*@56'#5;&'5%/
%7(5/$%-*A(;*$"&6*(*:"6'5$(:";%#(6&..:0(-*"/6("(>#*"'*#(@56'%#'5%/(7#%-(#*@56'#5;&'5?*
.%:5$5*62
1H2
"2
M7(0%&(">#**(B5'4('4*(6'"'*-*/'('4"'(à?*#0(."#*/'(4"6('4*(#5>4'('%(B%#=(4"#@
"/@(6"?*(5/(%#@*#('%(>5?*(456(%#(4*#($45:@#*/("(;*''*#(:57*A`('4*/(0%&E::('45/=
5/4*#5'"/$*('"V*6(64%&:@(;*(:%B2((M7(0%&(@56">#**A(0%&E::('45/=(5/4*#5'"/$*('"V*6
64%&:@(;*(45>42
;2
M7(0%&(">#**(B5'4('4*(6'"'*-*/'('4"'(`]%($45:@(64%&:@(;*(@56"@?"/'">*@(;0('4*
6:%'4(%#(;"@(:&$=(%7(456(%#(4*#(."#*/'6A`('4*/(0%&E::('45/=(5/4*#5'"/$*('"V*6
64%&:@(;*(45>42((M7(0%&(@56">#**A(0%&E::('45/=(5/4*#5'"/$*('"V*6(64%&:@(;*(:%B2
!"#$%&#'()#"$*(+(,%-."/0
20-4
!"#$%&'()*+((,"&(,"&-'.(-/(!-0123&'(!"-45&
62&1%4-01(/-'(7&84&9+((:019&'1
123
456&#*(7181(9:%;9(':*($%/9&-*#<9(=&>6*'($%/9'#"5/'2((?:*(5/'*#$*.'(%/(':*(:%#5@%/'"3
"A59(9:%;9(:%;(-&$:($:**9*(':*($%/9&-*#($%&3>(=&0(5B(9:*(=%&6:'(%/30($:**9*C(;5':
5/$%-*(%B(DEFGGG("/>(':*(.#5$*(%B($:**9*(DH("(.%&/>F(9:*($%&3>(=&0(IGG(.%&/>9(%B
$:**9*2((?:*(5/'*#$*.'(%/(':*(J*#'5$"3("A59(9:%;9(:%;(-&$:(;5/*(':*($%/9&-*#($%&3>
=&0(5B(9:*(=%&6:'(%/30(;5/*C(;5':(5/$%-*(%B(DEFGGG("/>(':*(.#5$*(%B(;5/*(DE("(63"99F
9:*($%&3>(=&0(1FGGG(63"99*9(%B(;5/*2((K5':($:**9*(%/(':*(:%#5@%/'"3("A59("/>(;5/*(%/
':*(J*#'5$"3("A59F(':*(=&>6*'($%/9'#"5/'(:"9("(93%.*(%B(1FGGGLIGG(M(72((N%'*(':"'(5B
0%&<>(.&'(;5/*(%/(':*(:%#5@%/'"3("A59("/>($:**9*(%/(':*(J*#'5$"3("A59F(':*(=&>6*'
$%/9'#"5/'(;%&3>(:"J*("(93%.*(%B(IGGL1FGGG(M(1L72
Wine
1,000
500
Cheese
723
456&#*(7187(9:%;9("($%/9&-*#<9(5/>5BB*#*/$*($&#J*9(B%#(;5/*("/>($:**9*2((4%&#
.#%.*#'5*9(%B(':*9*(5/>5BB*#*/$*($&#J*9("#*O((P1Q(:56:*#(5/>5BB*#*/$*($&#J*9("#*(.#*B*##*>
'%(3%;*#(%/*9(=*$"&9*(-%#*(59(.#*B*##*>('%(3*99C(P7Q(5/>5BB*#*/$*($&#J*9("#*(>%;/;"#>
93%.5/6(=*$"&9*(5B(':*(R&"/'5'0(%B(;5/*(5/(#*>&$*>F(':*(R&"/'5'0(%B($:**9*(-&9'(5/$#*"9*
B%#(':*($%/9&-*#('%(=*(*R&"330(:"..0C(PEQ(5/>5BB*#*/$*($&#J*9(>%(/%'($#%99(95/$*("
$%/9&-*#(.#*B*#9(-%#*('%(3*99C("/>(PSQ(5/>5BB*#*/$*($&#J*9("#*(=%;*>(5/;"#>(95/$*("
$%/9&-*#(59(-%#*(;5335/6('%('#">*(";"0(;5/*(5B(9:*(:"9("(3%'(%B(5'("/>(3*99(;5335/6('%
'#">*(";"0($:**9*(5B(9:*(:"9(35''3*(%B(5'2
!"#$%&#'()#"$*(+(,%-."/0
21-1
Wine
MRS
c
Cheese
E2
T/(456&#*(7187F(':*(-"#65/"3(#"'*(%B(9&=9'5'&'5%/(PUVWQ(%B(%/*(.%5/'(%/("/(5/>5BB*#*/$*
$&#J*(59(9:%;/2((?:*(-"#65/"3(#"'*(%B(9&=9'5'&'5%/(9:%;9(':*("-%&/'(%B(;5/*(':*
$%/9&-*#(;%&3>(=*(;5335/6('%(65J*(&.('%(6*'(%/*(-%#*(.%&/>(%B($:**9*2
S2
456&#*(718E(9:%;9(':*($%/9&-*#<9(=&>6*'($%/9'#"5/'("/>(5/>5BB*#*/$*($&#J*9(B%#(;5/*
"/>($:**9*2((?:*($%/9&-*#<9(%.'5-&-($%/9&-.'5%/($:%5$*(59(9:%;/("9(; ("/>($ 2(
W5/$*(':*(-"#65/"3(#"'*(%B(9&=9'5'&'5%/(*R&"39(':*(#*3"'5J*(.#5$*(%B(':*(';%(6%%>9("'(':*
%.'5-&-F(':*(-"#65/"3(#"'*(%B(9&=9'5'&'5%/(59(DHLDE(M(72
Wine
1,000
w*
c*
500
Cheese
!"#$%&#'()#"$*(+(,%-."/0
21-2
Wine
456&#*(718S(9:%;9(':*(*BB*$'(%B("/(5/$#*"9*(5/(5/$%-*2((?:*(#59*(5/(5/$%-*(9:5B'9(':*
=&>6*'($%/9'#"5/'(%&'(B#%-(), ('%(), 2((TB(=%':(;5/*("/>($:**9*("#*(/%#-"3(6%%>9F(
$%/9&-.'5%/(%B(=%':(5/$#*"9*92((TB($:**9*(59("/(5/B*#5%#(6%%>F(':*(5/$#*"9*(5/(5/$%-*
$"&9*9(':*($%/9&-.'5%/(%B($:**9*('%(>*$35/*F("9(9:%;/(5/(456&#*(718I2
w2
w1
BC1 BC2
c1 c2
Cheese
Wine
I2
w2
w1
BC1 BC2
c2 c1
Cheese
!"#$%&#'()#"$*(+(,%-."/0
21-3
H2
X(#59*(5/(':*(.#5$*(%B($:**9*(B#%-(DH('%(D1G("(.%&/>(-"Y*9(':*(:%#5@%/'"3(5/'*#$*.'(%B
':*(=&>6*'(35/*(>*$35/*(B#%-(IGG('%(EGGF("9(9:%;/(5/(456&#*(718H2((?:*($%/9&-*#<9
=&>6*'($%/9'#"5/'(9:5B'9(B#%-(), ('%(), ("/>(:*#(%.'5-"3($:%5$*($:"/6*9(B#%-(.%5/'(X
P$ ($:**9*F(; (;5/*Q('%(.%5/'()(P$ ($:**9*F(; (;5/*Q2((?%(>*$%-.%9*(':59($:"/6*(5/'%
5/$%-*("/>(9&=9'5'&'5%/(*BB*$'9F(;*(>#";(5/(=&>6*'($%/9'#"5/'(), F(;:5$:(59(."#"33*3('%
), (=&'('"/6*/'('%(':*($%/9&-*#<9(5/5'5"3(5/>5BB*#*/$*($&#J*("'(.%5/'(,2((?:*(-%J*-*/'
B#%-(.%5/'(X('%(,(#*.#*9*/'9(':*(9&=9'5'&'5%/(*BB*$'2((W5/$*($:**9*(=*$"-*(-%#*
*A.*/95J*F(':*($%/9&-*#(9&=9'5'&'*9(;5/*(B%#($:**9*("9(9:*(-%J*9(B#%-(.%5/'(X('%(,2(
?:*(-%J*-*/'(B#%-(.%5/'(,('%()(#*.#*9*/'9("/(5/$%-*(*BB*$'2((?:*(#59*(5/(':*(.#5$*(%B
$:**9*(#*9&3'9(5/("/(*BB*$'5J*(>*$35/*(5/(5/$%-*2
Wine
1,000
w3
w1
w2
C
A
B
BC3
BC2
C2 C3 C1300
BC1
500
Cheese
Z2
X/(5/$#*"9*(5/(':*(.#5$*(%B($:**9*($%&3>(5/>&$*("($%/9&-*#('%(=&0(-%#*($:**9*(5B
$:**9*(59("([5BB*/(6%%>2((T/(':"'($"9*F(':*(5/$%-*(*BB*$'(%B(':*(#59*(5/(':*(.#5$*(%B
$:**9*(5/>&$*9(':*($%/9&-*#('%(=&0(-%#*($:**9*(5B($:**9*(59("/(5/B*#5%#(6%%>2((TB(':*
5/$%-*(*BB*$'(59(=566*#(':"/(':*(9&=9'5'&'5%/(*BB*$'(P;:5$:(5/>&$*9(':*($%/9&-*#('%(=&0
3*99($:**9*QF(':*($%/9&-*#(;%&3>(=&0(-%#*($:**9*2
;'-<=&31(#0>(:$$=45#%4-01+((:019&'1
12
"2
456&#*(718Z(9:%;9(':*(*BB*$'(%B(':*(B#%9'(%/(\*//5B*#<9(=&>6*'($%/9'#"5/'2((W5/$*
':*(.#5$*(%B($%BB**(#59*9F(:*#(=&>6*'($%/9'#"5/'(9;5J*39(B#%-(), ('%(), 2
!"#$%&#'()#"$*(+(,%-."/0
21-4
Croissants
B
A
I1
I2
BC2
BC1
Coffee
TB(':*(9&=9'5'&'5%/(*BB*$'(%&';*56:9(':*(5/$%-*(*BB*$'(B%#($#%599"/'9F(\*//5B*#
=&09(-%#*($#%599"/'9("/>(3*99($%BB**F("9(9:%;/(5/(456&#*(718Z2((W:*(-%J*9(B#%.%5/'(X('%(.%5/'()2
$2
TB(':*(5/$%-*(*BB*$'(%&';*56:9(':*(9&=9'5'&'5%/(*BB*$'(B%#($#%599"/'9F(\*//5B*#
=&09(B*;*#($#%599"/'9("/>(3*99($%BB**F(-%J5/6(B#%-(.%5/'(X('%(.%5/'()(5/(456&#*
718]2
Croissants
=2
A
B
I1
I2
BC2
BC1
Coffee
!"#$%&#'()#"$*(+(,%-."/0
21-5
72
T/>5BB*#*/$*($&#J*9(=*';**/(,%Y*("/>(^*.95("#*(B"5#30(9'#"56:'F(95/$*(':*#*(59(35''3*('%
>59'5/6&59:(':*-F(9%(':*0("#*(/*"#30(.*#B*$'(9&=9'5'&'*92((T/>5BB*#*/$*($&#J*9(=*';**/
9Y59("/>(9Y5(=5/>5/69("#*(J*#0(=%;*>F(95/$*(':*0("#*($%-.3*-*/'92((X($%/9&-*#(;533
#*9.%/>(-%#*('%("($:"/6*(5/(':*(#*3"'5J*(.#5$*(%B(,%Y*("/>(^*.95F(.%995=30(9;5'$:5/6
$%-.3*'*30(B#%-(%/*('%(':*(%':*#(5B(':*(.#5$*($:"/6*92
E2
"2
,:**9*("/>($#"$Y*#9($"//%'(=%':(=*(5/B*#5%#(6%%>9F(95/$*(5B(U"#5%<9(5/$%-*
#59*9(:*(-&9'($%/9&-*(-%#*(%B(9%-*':5/62
=2
TB(':*(.#5$*(%B($:**9*(B"339F(':*(9&=9'5'&'5%/(*BB*$'(-*"/9(U"#5%(;533($%/9&-*
-%#*($:**9*("/>(3*99($#"$Y*#92((?:*(5/$%-*(*BB*$'(-*"/9(U"#5%(;533($%/9&-*
-%#*($:**9*(P95/$*($:**9*(59("(/%#-"3(6%%>Q("/>(3*99($#"$Y*#9(P95/$*($#"$Y*#9
"#*("/(5/B*#5%#(6%%>Q2((W%F(=%':(*BB*$'9(3*">(U"#5%('%($%/9&-*(-%#*($:**9*("/>
3*99($#"$Y*#92
"2
456&#*(718_(9:%;9(\5-<9(=&>6*'($%/9'#"5/'2((?:*(J*#'5$"3(5/'*#$*.'(59(IG(R&"#'9
%B(-53YF(95/$*(5B(\5-(9.*/'("33(:59(-%/*0(%/(-53Y(:*(;%&3>(=&0(D1GGLD7(M(IG
R&"#'9(%B(5'2((?:*(:%#5@%/'"3(5/'*#$*.'(59(7I(>%@*/($%%Y5*9F(95/$*(5B(\5-(9.*/'("33
:59(-%/*0(%/($%%Y5*9(:*(;%&3>(=&0(D1GGLDS(M(7I(>%@*/($%%Y5*92
50
Milk
S2
25
Cookies
=2
TB(\5-<9(9"3"#0(#59*9(=0(1G(.*#$*/'('%(D11G("/>(':*(.#5$*9(%B(-53Y("/>($%%Y5*9
#59*(=0(1G(.*#$*/'('%(D727G("/>(DS2SGF(\5-<9(=&>6*'($%/9'#"5/'(;%&3>(=*
&/$:"/6*>2((N%'*(':"'(D11GLD727G(M(IG("/>(D11GLDS2SG(M(7IF(9%(':*(5/'*#$*.'9
%B(':*(/*;(=&>6*'($%/9'#"5/'(;%&3>(=*(':*(9"-*("9(':*(%3>(=&>6*'($%/9'#"5/'2(
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!"#$%&#'()#"$*(+(,%-."/0
21-6
"2
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'"A*92(()&>6*'($%/9'#"5/'(), (9:%;9(':*(=&>6*'($%/9'#"5/'(;5':("(1I(.*#$*/'('"A2
Consumption
BC1
BC2
Leisure
=2
456&#*(71811(9:%;9(5/>5BB*#*/$*($&#J*9(B%#(;:5$:("(.*#9%/(;533(;%#Y(-%#*
=*$"&9*(%B(':*('"AF(456&#*(71817(9:%;9(5/>5BB*#*/$*($&#J*9(B%#(;:5$:("(.*#9%/
;533(;%#Y(B*;*#(:%&#9(=*$"&9*(%B(':*('"AF("/>(456&#*(7181E(9:%;9(5/>5BB*#*/$*
$&#J*9(B%#(;:5$:("(.*#9%/(;533(;%#Y(':*(9"-*(/&-=*#(%B(:%&#9("B'*#(':*('"A2
BC1
Consumption
I2
BC2
Leisure
!"#$%&#'()#"$*(+(,%-."/0
21-7
Consumption
BC1
BC2
Leisure
Consumption
BC1
BC2
Leisure
H2
456&#*(7181S(9:%;9(W"#":<9(=&>6*'($%/9'#"5/'9("/>(5/>5BB*#*/$*($&#J*9(5B(9:*(*"#/9(DH
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` (:%&#9C("'("(;"6*(%B(D](.*#(:%&#F(9:*(;%#Y9(1GG(8(` (:%&#9C("/>("'("(;"6*(%B(D1G(.*#
:%&#F(9:*(;%#Y9(1GG(8(` (:%&#92((W5/$*(':*(3"=%#(9&..30($&#J*(59(&.;"#>893%.5/6(;:*/
':*(;"6*(59(=*';**/(DH("/>(D](.*#(:%&#F(` (a(` C(95/$*(':*(3"=%#(9&..30($&#J*(59
="$Y;"#>893%.5/6(;:*/(':*(;"6*(59(=*';**/(D]("/>(D1G(.*#(:%&#F(` (a(` 2
!"#$%&#'()#"$*(+(,%-."/0
21-8
$1,000
Consumption
BC3
$800
BC2
$600
BC1
L8 L6 L10
100
Leisure
456&#*(7181I(9:%;9(':*(5/>5BB*#*/$*($&#J*(=*';**/(3*59&#*("/>($%/9&-.'5%/(':"'
>*'*#-5/*9(:%;(-&$:("(.*#9%/(;%#Y92((X/(5/$#*"9*(5/(':*(;"6*(3*">9('%(=%':("/
5/$%-*(*BB*$'("/>("(9&=9'5'&'5%/(*BB*$'2((?:*(:56:*#(;"6*(-"Y*9(':*(=&>6*'($%/9'#"5/'
9'**.*#F(9%(':*(9&=9'5'&'5%/(*BB*$'(5/$#*"9*9($%/9&-.'5%/("/>(#*>&$*9(3*59&#*2(()&'(':*
:56:*#(;"6*(:"9("/(5/$%-*(*BB*$'(':"'(5/$#*"9*9(=%':($%/9&-.'5%/("/>(3*59&#*(5B(=%':
"#*(/%#-"3(6%%>92((?:*(%/30(;"0(':"'($%/9&-.'5%/($%&3>(>*$#*"9*(5B(':*(;"6*(5/$#*"9*>
;%&3>(=*(5B($%/9&-.'5%/(59("/(5/B*#5%#(6%%>("/>(5B(':*(/*6"'5J*(5/$%-*(*BB*$'(%&';*56:9
':*(.%95'5J*(9&=9'5'&'5%/(*BB*$'2((?:59($%&3>(:"..*/(B%#("(.*#9%/(;:%(#*"330(J"3&*>
3*59&#*2
Consumption
Z2
Leisure
!"#$%&#'()#"$*(+(,%-."/0
21-9
"2
456&#*(7181H(9:%;9(:%;("(#59*(5/(':*(5/$%-*(%B("(:&9="/>($"/(3*">('%("(B"33(5/
':*(/&-=*#(%B(:%&#9(;%#Y*>(=0(:59(;5B*2((?:*(5/$#*"9*(5/(':*(5/$%-*(%B(':*
:&9="/>(59(9:%;/(=0("(9:5B'(%B(':*(;5B*<9(=&>6*'($%/9'#"5/'(B#%-(), ('%(), 2(
W5/$*(:*#(5/$%-*(59(:56:*#F(5B(3*59&#*(59("(/%#-"3(6%%>F(9:*<33(;"/'(-%#*(3*59&#*
"/>(':&9(;%#Y(3*99F("9(':*(B56&#*(9:%;92
Consumption
BC2
BC1
L1
L2
Leisure
=2
456&#*(7181Z(9:%;9(:%;("(#59*(5/(B*-"3*(;"6*9("BB*$'9("(;%-"/<9(>*$595%/(%B
:%;(-"/0(:%&#9('%(;%#Y2((?:*(#59*(5/(;"6*9(3*">9('%("(9&=9'5'&'5%/(*BB*$'F
;:5$:(>*$#*"9*9(3*59&#*("/>(5/$#*"9*(;%#Y(:%&#9F("/>("/(5/$%-*(*BB*$'F(;:5$:
5/$#*"9*9(3*59&#*("/>(>*$#*"9*9(;%#Y(:%&#9(5B(3*59&#*(59("(/%#-"3(6%%>2((TB(':*
9&=9'5'&'5%/(*BB*$'(>%-5/"'*9F(':*(;%-"/(;533(;%#Y(-%#*(:%&#9F("9(':*(B56&#*
9:%;92
BC2
Consumption
]2
BC1
L2
L1
Leisure
!"#$%&#'()#"$*(+(,%-."/0
21-10
"2
456&#*(7181](9:%;9(':*(95'&"'5%/(5/(;:5$:(0%&#(9"3"#0(5/$#*"9*9(B#%-(DEGFGGG('%
DSGFGGG2((K5':(/&-=*#9(9:%;/(5/(':%&9"/>9(%B(>%33"#9(5/(':*(B56&#*F(0%&#(5/5'5"3
=&>6*'($%/9'#"5/'F(), F(:"9("(:%#5@%/'"3(5/'*#$*.'(%B(EGF(95/$*(0%&($%&3>(9.*/>
"33(0%&#(5/$%-*(;:*/(0%&/62((?:*(J*#'5$"3(5/'*#$*.'(59(E12IF(95/$*(5B(0%&(9.*/'
/%':5/6(;:*/(0%&/6("/>(9"J*>("33(0%&#(5/$%-*F(*"#/5/6(I(.*#$*/'(5/'*#*9'F
0%&<>(:"J*(DE1FIGG('%(9.*/>(;:*/(%3>2((TB(0%&#(9"3"#0(5/$#*"9*9('%(DSGFGGGF
0%&#(=&>6*'($%/9'#"5/'(9:5B'9(%&'(5/("(."#"33*3(B"9:5%/F(;5':(5/'*#$*.'9(%B(SG("/>
S7F(#*9.*$'5J*302((?:59(59("/(5/$%-*(*BB*$'(%/30F(9%(5B($%/9&-.'5%/(;:*/(0%&/6
"/>(%3>("#*(=%':(/%#-"3(6%%>9F(0%&<33(9.*/>(-%#*(5/(=%':(.*#5%>92
Consumption When Old
_2
42
BC2
31.5
BC1
30 40
Consumption When Young
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[4*/(0%&(>%##%<(\1@NNN(5#%-("(>"/=('%(>&0("($"#('%(&8*(6/(0%&#(.6SS"O?*76:*#0
>&86/*88@('4"'98(6/:*8'-*/'@(>*$"&8*('4*($"#(68("($".6'"7(;%%?2((
"2
G5(6/'*#*8'(#"'*8(6/$#*"8*@('4*($%8'8(%5(>%##%<6/;(-%/*0('%(>&67?('4*(5"$'%#0
>*$%-*(46;4*#@(8%('4*(#*'&#/8(5#%-(>&67?6/;('4*(/*<(.7"/'(-"0(/%'(>*(8&556$6*/'
'%($%:*#('4*($%8'82((34&8(46;4*#(6/'*#*8'(#"'*8(-"=*(6'(7*88(76=*70('4"'(G/'*7(<677
>&67?('4*(/*<(5"$'%#02
>2
L:*/(65(G/'*7(&8*8(6'8(%</(5&/?8('%(56/"/$*('4*(5"$'%#0@('4*(#68*(6/(6/'*#*8'(#"'*8
8'677(-"''*#82((34*#*98("/(%..%#'&/6'0($%8'(%/('4*(&8*(%5('4*(5&/?82((G/8'*"?(%5
6/:*8'6/;(6/('4*(5"$'%#0@(G/'*7($%&7?(6/:*8'('4*(-%/*0(6/('4*(>%/?(-"#=*'('%(*"#/
'4*(46;4*#(6/'*#*8'(#"'*(":"67">7*('4*#*2((G/'*7(<677($%-."#*(6'8(.%'*/'6"7(#*'&#/8
5#%-(>&67?6/;('4*(5"$'%#0('%('4*(.%'*/'6"7(#*'&#/8(5#%-('4*(>%/?(-"#=*'2((J%(65
6/'*#*8'(#"'*8(#68*@(8%('4"'(>%/?(-"#=*'(#*'&#/8(#68*@(G/'*7(68(";"6/(7*88(76=*70('%
6/:*8'(6/('4*(5"$'%#02
!"#$%&#'()#"$*(+(,%-."/0
25/13-3
"2
R6;&#*(AKO1(677&8'#"'*8('4*(*55*$'(%5('4*(\AN(>6776%/(6/$#*"8*(6/(;%:*#/-*/'
>%##%<6/;2((G/6'6"770@('4*(8&..70(%5(7%"/">7*(5&/?8(68($&#:*(J @('4*(*E&676>#6&#*"7(6/'*#*8'(#"'*(68(6 @("/?('4*(E&"/'6'0(%5(7%"/">7*(5&/?8(68(^ 2((34*(6/$#*"8*(6/
;%:*#/-*/'(>%##%<6/;(>0(\AN(>6776%/(#*?&$*8('4*(8&..70(%5(7%"/">7*(5&/?8(5%#
*"$4(6/'*#*8'(#"'*(>0(\AN(>6776%/@(8%('4*(/*<(8&..70($&#:*@(J @(68(84%</(>0("
8465'('%('4*(7*5'(%5(J (>0(*D"$'70(\AN(>6776%/2((I8("(#*8&7'(%5('4*(8465'@('4*(/*<
*E&676>#6&-(#*"7(6/'*#*8'(#"'*(68(6 2((34*(6/'*#*8'(#"'*(4"8(6/$#*"8*?("8("(#*8&7'(%5
'4*(6/$#*"8*(6/(;%:*#/-*/'(>%##%<6/;2
S2
S1
Interest Rate
1N2
i2
i1
Demand
L1 20 L2 L1
Loanable Funds
>2
J6/$*('4*(6/'*#*8'(#"'*(4"8(6/$#*"8*?@(6/:*8'-*/'("/?(/"'6%/"7(8":6/;(?*$76/*("/?
.#6:"'*(8":6/;(6/$#*"8*82((34*(6/$#*"8*(6/(;%:*#/-*/'(>%##%<6/;(#*?&$*8(.&>76$
8":6/;2((R#%-('4*(56;&#*(0%&($"/(8**('4"'('%'"7(7%"/">7*(5&/?8(_"/?('4&8(>%'4
6/:*8'-*/'("/?(/"'6%/"7(8":6/;`(?*$76/*(>0(7*88('4"/(\AN(>6776%/@(<467*(.&>76$
8":6/;(?*$76/*8(>0(\AN(>6776%/("/?(.#6:"'*(8":6/;(#68*8(>0(7*88('4"/(\AN(>6776%/2(
$2
34*(-%#*(*7"8'6$(68('4*(8&..70(%5(7%"/">7*(5&/?8@('4*(57"''*#('4*(8&..70($&#:*
<%&7?(>*@(8%('4*(6/'*#*8'(#"'*(<%&7?(#68*(>0(7*88("/?('4&8(/"'6%/"7(8":6/;(<%&7?
5"77(>0(7*88@("8(R6;&#*(AKOA(84%<82
?2
34*(-%#*(*7"8'6$('4*(?*-"/?(5%#(7%"/">7*(5&/?8@('4*(57"''*#('4*(?*-"/?($&#:*
<%&7?(>*@(8%('4*(6/'*#*8'(#"'*(<%&7?(#68*(>0(7*88("/?('4&8(/"'6%/"7(8":6/;(<%&7?
5"77(>0(-%#*@("8(R6;&#*(AKOF(84%<82
*2
G5(4%&8*4%7?8(>*76*:*('4"'(;#*"'*#(;%:*#/-*/'(>%##%<6/;('%?"0(6-.76*8(46;4*#
'"D*8('%(."0(%55('4*(;%:*#/-*/'(?*>'(6/('4*(5&'&#*@('4*/(.*%.7*(<677(8":*(-%#*(8%
'4*0($"/(."0('4*(46;4*#(5&'&#*('"D*8@(8%(.#6:"'*(8":6/;(<677(6/$#*"8*@("8(<677('4*
!"#$%&#'()#"$*(+(,%-."/0
25/13-4
8&..70(%5(7%"/">7*(5&/?82((3468(<677(%558*'('4*(#*?&$'6%/(6/(.&>76$(8":6/;@('4&8
#*?&$6/;('4*("-%&/'(>0(<46$4('4*(*E&676>#6&-(E&"/'6'0(%5(6/:*8'-*/'("/?
/"'6%/"7(8":6/;(?*$76/*@("/?(#*?&$6/;('4*("-%&/'('4"'('4*(6/'*#*8'(#"'*(#68*82((G5
'4*(#68*(6/(.#6:"'*(8":6/;(<"8(*D"$'70(*E&"7('%('4*(6/$#*"8*(6/(;%:*#/-*/'
>%##%<6/;@('4*#*(<%&7?(>*(/%(8465'(6/('4*(/"'6%/"7(8":6/;($&#:*@(8%(6/:*8'-*/'@
/"'6%/"7(8":6/;@("/?('4*(6/'*#*8'(#"'*(<%&7?("77(>*(&/$4"/;*?2((3468(68('4*($"8*(%5
a6$"#?6"/(*E&6:"7*/$*2
Inelastic Supply
S2
Elastic Supply
S1
S2
i2
S1
i2
i1
i1
D
L2
L1
L2 L1
L
Inelastic Demand
Elastic Demand
S2
S1
S2
S1
i2
i1
i2
i1
D
D
L2 L1
L
112
L2
L
L1
J6/$*(/*<($%-.&'*#('*$4/%7%;0(*/">7*8(56#-8('%(#*?&$*(6/:*/'%#0(6/:*8'-*/'@('4*
?*-"/?($&#:*(5%#(7%"/">7*(5&/?8(8465'8('%('4*(7*5'@("8(84%</(6/(R6;&#*(AKOH2((I8("
#*8&7'@('4*(*E&676>#6&-(E&"/'6'0(%5(7%"/">7*(5&/?8(?*$76/*8@("8(?%*8('4*(6/'*#*8'(#"'*2(
!"#$%&#'()#"$*(+(,%-."/0
25/13-5
34*(?*$76/*(6/('4*(6/'*#*8'(#"'*('4*/(6/$#*"8*8(6/:*8'-*/'(6/(5"$'%#6*8("/?(*E&6.-*/'@
>&'(%:*#"77(6/:*8'-*/'(8'677(?*$76/*82((
Interest Rate
Supply
i1
i2
D1
D2
L2 L1
Loanable Funds
G5(<%#7?(8":6/;8(?*$76/*8("'('4*(8"-*('6-*(<%#7?(6/:*8'-*/'(#68*8@('4*(8&..70($&#:*(%5
7%"/">7*(5&/?8(8465'8('%('4*(7*5'("/?('4*(?*-"/?($&#:*(8465'8('%('4*(#6;4'2((R6;&#*(AKOK
677&8'#"'*8('4*(#*8&7'('4"'('4*(<%#7?(6/'*#*8'(#"'*(<677(#68*@(<467*('4*(%:*#"77(*55*$'(%/('4*
*E&676>#6&-(E&"/'6'0(%5(7%"/">7*(5&/?8(68("->6;&%&8W6'(?*.*/?8(%/(4%<(>6;('4*(8465'8
%5('4*('<%($&#:*8("#*(#*7"'6:*('%(*"$4(%'4*#("/?(%/('4*6#(*7"8'6$6'6*82
Supply
Interest Rate
1A2
i1
i2
D2
D1
L2 L1
Loanable Funds
!"#$%&#'()#"$*(+(,%-."/0
25/13-6
1F2
"2
G/:*8'-*/'($"/(>*(6/$#*"8*?(>0(#*?&$6/;('"D*8(%/(.#6:"'*(8":6/;(%#(>0(#*?&$6/;
'4*(;%:*#/-*/'(>&?;*'(?*56$6'2(()&'(#*?&$6/;('"D*8(%/(.#6:"'*(8":6/;(4"8('4*
*55*$'(%5(6/$#*"86/;('4*(;%:*#/-*/'(>&?;*'(?*56$6'@(&/7*88(8%-*(%'4*#('"D*8("#*
6/$#*"8*?(%#(;%:*#/-*/'(8.*/?6/;(68(#*?&$*?2((J%(6'(68(?6556$&7'('%(*/;";*(6/(>%'4
.%76$6*8("'('4*(8"-*('6-*2
>2
3%(=/%<(<46$4(%5('4*8*(.%76$6*8(<%&7?(>*("(-%#*(*55*$'6:*(<"0('%(#"68*
6/:*8'-*/'@(0%&9?(/**?('%(=/%<b((_1`(<4"'('4*(*7"8'6$6'0(%5(.#6:"'*(8":6/;(68(<6'4
#*8.*$'('%('4*("5'*#O'"D(#*"7(6/'*#*8'(#"'*@(86/$*('4"'(<%&7?(?*'*#-6/*(4%<(-&$4
.#6:"'*(8":6/;(<%&7?(6/$#*"8*(65(0%&(#*?&$*?('"D*8(%/(8":6/;c(_A`(4%<(.#6:"'*
8":6/;(#*8.%/?8('%($4"/;*8(6/('4*(;%:*#/-*/'(>&?;*'(?*56$6'@(86/$*@(5%#
*D"-.7*@(65(a6$"#?6"/(*E&6:"7*/$*(4%7?8@('4*(?*$76/*(6/('4*(;%:*#/-*/'(>&?;*'
?*56$6'(<%&7?(>*(-"'$4*?(>0("/(*E&"7(?*$76/*(6/(.#6:"'*(8":6/;@(8%(/"'6%/"7
8":6/;(<%&7?/9'(6/$#*"8*("'("77c("/?(_F`(4%<(*7"8'6$(6/:*8'-*/'(68(<6'4(#*8.*$'('%
'4*(6/'*#*8'(#"'*@(86/$*(65(6/:*8'-*/'(68(E&6'*(6/*7"8'6$@(/*6'4*#(.%76$0(<677(4":*
-&$4(%5("/(6-."$'(%/(6/:*8'-*/'2
!"#$%&#'()#"$*(+(,%-."/0
25/13-7
!"#$%&'()*+((,"&(-#%.'#/(0#%&(12(34&5$/165&4%
7.&8%9148(21'(0&:9&;+((<48;&'8
12
34*()56($"'*7%#89*:(*"$4(";&<'(=1>(0*"#:(%?("7*("/;(%<;*#@(":(*8'4*#(*-.<%0*;A
&/*-.<%0*;A(%#(/%'(8/('4*(<"B%#(?%#$*2((34*(<"B%#(?%#$*($%/:8:':(%?('4*(:&-(%?('4*
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'%'"<(";&<'(.%.&<"'8%/('4"'(8:(8/('4*(<"B%#(?%#$*2
D2
E/*-.<%0-*/'(8:('0.8$"<<0(:4%#'('*#-2((F%:'(.*%.<*(G4%(B*$%-*(&/*-.<%0*;("#*("B<*
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#*<"'8K*<0(?*G(G%#J*#:(G4%("#*(H%B<*::(?%#(<%/7(.*#8%;:(%?('8-*2
L2
F8/8-&-CG"7*(<"G:("#*("(B*''*#(*M.<"/"'8%/(?%#(&/*-.<%0-*/'("-%/7('**/"7*#:('4"/
"-%/7($%<<*7*(7#";&"'*:2((3**/"7*#:(4"K*(?*G*#(H%BC#*<"'*;(:J8<<:('4"/($%<<*7*
7#";&"'*:A(:%('4*8#(G"7*:("#*(<%G(*/%&74('%(B*("??*$'*;(B0('4*(-8/8-&-(G"7*2(
,%<<*7*(7#";&"'*:N(G"7*:(?"#(*M$**;('4*(-8/8-&-(G"7*2
O2
E/8%/:(-"0("??*$'('4*(/"'&#"<(#"'*(%?(&/*-.<%0-*/'(K8"('4*(*??*$'(%/(8/:8;*#:("/;
%&':8;*#:2((68/$*(&/8%/:(#"8:*('4*(G"7*("B%K*('4*(*I&8<8B#8&-(<*K*<A('4*(I&"/'8'0(%?
<"B%#(;*-"/;*;(;*$<8/*:(G48<*('4*(:&..<0(%?(<"B%#(#8:*:A(:%('4*#*(8:(&/*-.<%0-*/'2(
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4"K*('G%($4%8$*:R((*8'4*#(7*'("(H%B(8/("(?8#-('4"'(8:/N'(&/8%/89*;(%#(#*-"8/(&/*-.<%0*;
"/;(G"8'(?%#("(H%B('%(%.*/(&.(8/('4*(&/8%/(:*$'%#2((S:("(#*:&<'A('4*(/"'&#"<(#"'*(%?
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T2
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"/'8;%'*('%('4*(-"#J*'(.%G*#(%?('4*(?8#-:('4"'(48#*(G%#J*#:("/;('4*0("#*(8-.%#'"/'(?%#
4*<.8/7(?8#-:(#*:.%/;(*??8$8*/'<0('%(G%#J*#:N($%/$*#/:2
>2
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G%#J*#(*??%#'(8:(8/$#*":*;V("/;(=O@('4*(?8#-($"/("''#"$'(4874*#(I&"<8'0(G%#J*#:2
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6*"#$4(&/*-.<%0-*/'(8:(8/*K8'"B<*(B*$"&:*('4*(*$%/%-0(8:("<G"0:($4"/78/72((6%-*
?8#-:("#*(:4#8/J8/7(G48<*(%'4*#:("#*(*M."/;8/72((6%-*(#*78%/:("#*(*M.*#8*/$8/7(?":'*#
7#%G'4('4"/(%'4*#(#*78%/:2((3#"/:8'8%/:(%?(G%#J*#:(B*'G**/(?8#-:("/;(B*'G**/(#*78%/:
"#*("$$%-."/8*;(B0('*-.%#"#0(&/*-.<%0-*/'2
!"#$%&#'()#"$*(+(,%-."/0
26/14-1
34*(7%K*#/-*/'($%&<;(4*<.('%(#*;&$*('4*("-%&/'(%?(:*"#$4(&/*-.<%0-*/'(B0(.&B<8$
.%<8$8*:('4"'(.#%K8;*(8/?%#-"'8%/("B%&'(H%B(K"$"/$8*:(8/(%#;*#('%(-"'$4(G%#J*#:("/;
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12
34*(<"B%#(?%#$*($%/:8:':(%?('4*(/&-B*#(%?(*-.<%0*;(=1DWATXWAYYY@(.<&:('4*(/&-B*#(%?
&/*-.<%0*;(=WADD1AYYY@A(G48$4(*I&"<:(1LOAXYXAYYY2((
3%(?8/;('4*(<"B%#C?%#$*(."#'8$8."'8%/(#"'*A(G*(/**;('%(J/%G('4*(:89*(%?('4*(";&<'
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<"B%#(?%#$*(=>>A>OTAYYY@(78K*:('4*(";&<'(.%.&<"'8%/(%?(DY1AOTLAYYY2((34*(<"B%#C?%#$*
."#'8$8."'8%/(#"'*(8:('4*(<"B%#(?%#$*(=1LOAXYXAYYY@(;8K8;*;(B0('4*(";&<'(.%.&<"'8%/
=DY1AOTLAYYY@('8-*:(1YYZA(G48$4(*I&"<:(>WZ2
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348:(G":(B*$"&:*(%?(8/$#*":*;(6%$8"<(6*$&#8'0(B*/*?8':("/;(#*'8#*-*/'(8/$%-*('4"/
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G%#J*#:2((34*(<"B%#(?%#$*($%/:'"/'<0(8/$#*":*:(":('4*(.%.&<"'8%/(7#%G:("/;(":(<"B%#C
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T2
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26/14-2
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$2
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#"8<#%";:(8:(<8J*<0('%(B*(&/*-.<%0*;(?%#("(<%/7('8-*2((34*(G%#J*#(G8<<(4"K*("(<%'
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Supply
Wage
>2
B2
m2
m1
Demand
L2D L1D
L1S L2S
Quantity of Labor
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26/14-3
W2
U8#-:(8/(:-"<<('%G/:(4"K*(-%#*(-"#J*'(.%G*#(8/(48#8/7(B*$"&:*('4*#*("#*(?*G*#
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X2
"2
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Nonunionized Market
S
S1
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w2u
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!"#$%&#'()#"$*(+(,%-."/0
26/14-4
D
N1 N2
QL
^2
1Y2
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!"#$%&#'()#"$*(+(,%-."/0
26/14-5
"2
P?("(?8#-(G*#*(.#%K8;8/7(/%(:&$4(B*/*?8':(.#8%#('%('4*(<*78:<"'8%/A('4*($&#K*
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S1
S2
Wage
1D2
w1
w1 $4
D1
D2
L1
Quantity of Labor
;2
P?('4*(-8/8-&-(G"7*(.#*K*/':('4*(G"7*(?#%-(?"<<8/7A('4*(#*:&<'(G8<<(B*
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!"#$%&#'()#"$*(+(,%-."/0
26/14-6
S1
S2
Wage
D1
D2
L2D
L2S
P?('4*(G%#J*#:(;%/N'(K"<&*('4*(-"/;"'*;(B*/*?8'("'("<<A('4*(:&..<0($&#K*(%?(<"B%#
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Supply
Wage
*2
L1D
L1S
Quantity of Labor
w1
w2
w1 $4
D1
D2
L 2 L1
Quantity of Labor
!"#$%&#'()#"$*(+(,%-."/0
26/14-7
\8'4("(-8/8-&-(G"7*(8/(*??*$'A(":(8/(."#'("A('4*(8-."$'(%/(&/*-.<%0-*/'(8:/N'
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!"#$%&#'()#"$*(+(,%-."/0
26/14-8
!"#$%&'()*+((,"&(-./&%#'0(102%&3
45&2%6./2(7.'(8&96&:+((;/2:&'2
12
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$".:'"9(>*$9:/*62
!"#$%&#'()#"$*(+(,%-."/0
29/17-2
I2
`2
_2
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"2
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$2
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29/17-3
>2
D7('4*(N2B2(/%-:/"9(*5$4"/<*(#"'*(>*$9:/*6@("/>(.#:$*6(#:6*(7"6'*#("=#%">('4"/(:/
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>%99"#6@(=&0("(=&64*9(%7(H-*#:$"/(#:$*@('4*/(6*99(:'(:/(J"."/(7%#(1`@EEE(0*/@
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6:</:7:$"/'90(-%#*(*5.*/6:8*(:/(6%-*($%&/'#:*6('4"/(%'4*#6@("/>(#*6'#:$':%/6(%/
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112
!"#$%&#'()#"$*(+(,%-."/0
29/17-4
!"#$%&'()*+((,(-#.'/&./0/12.(3"&/'4(/5(%"&(6$&0(7./0/14
89&:%2/0:(5/'(;&<2&=+((,0:=&':
12
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7&/95($%-*5(7#%-(9%-*5':$(:/;*5'-*/'("/9(/*'(7%#*:</(:/;*5'-*/'2((34*(5&..60(%7
9%66"#5(:/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*($%-*5(7#%-(/*'(7%#*:</(:/;*5'-*/'2((34*
9*-"/9(7%#(9%66"#5(:/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*($%-*5(7#%-(/*'(*>.%#'52((34*
6:/=(8*'?**/('4*('?%(-"#=*'5(:5(/*'(7%#*:</(:/;*5'-*/'2
@2
A%;*#/-*/'(8&9<*'(9*7:$:'5("/9('#"9*(9*7:$:'5("#*(5%-*':-*5($"66*9('4*('?:/(9*7:$:'5
8*$"&5*("(<%;*#/-*/'(8&9<*'(9*7:$:'(%7'*/(6*"95('%("('#"9*(9*7:$:'2((34*(<%;*#/-*/'
8&9<*'(9*7:$:'(6*"95('%(#*9&$*9(/"':%/"6(5";:/<B($"&5:/<('4*(:/'*#*5'(#"'*('%(:/$#*"5*B
'4&5(#*9&$:/<(/*'(7%#*:</(:/;*5'-*/'B(?4:$4(:/('&#/(#*9&$*5(/*'(*>.%#'52
C2
D7("(&/:%/(%7('*>':6*(?%#=*#5(*/$%&#"<*5(.*%.6*('%(8&0(%/60(E-*#:$"/F-"9*($6%'4*5B
:-.%#'5(?%&69(8*(#*9&$*9B(5%(/*'(*>.%#'5(?%&69(:/$#*"5*(7%#("/0(<:;*/(#*"6(*>$4"/<*
#"'*2((34:5(?%&69($"&5*('4*(9*-"/9($&#;*(:/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*('%(54:7'('%
'4*(#:<4'B("5(54%?/(:/(G:<&#*(CHF12((34*(#*5&6'(:5("(#:5*(:/('4*(#*"6(*>$4"/<*(#"'*B(8&'(/%
*77*$'(%/('4*('#"9*(8"6"/$*2((34*('*>':6*(:/9&5'#0(?%&69(:-.%#'(6*55B(8&'(%'4*#(:/9&5'#:*5B
5&$4("5('4*("&'%(:/9&5'#0B(?%&69(:-.%#'(-%#*(8*$"&5*(%7('4*(4:<4*#(#*"6(*>$4"/<*(#"'*2((
!"#$%&#'()#"$*(+(,%-."/0
30/18-1
Net Foreign Investment

Real Interest Rate
Real Interest Rate
Supply
r1
Demand
Real Exchange Rate
Quantity of Loanable Funds
Supply
E2
E1
D2
D1
Quantity of Dollars
I2
D7(,%/<#*55(."55*5("/(:/;*5'-*/'('">($#*9:'B(:'(5&85:9:J*5(9%-*5':$(:/;*5'-*/'2((34*
9*5:#*('%(:/$#*"5*(9%-*5':$(:/;*5'-*/'(6*"95(7:#-5('%(8%##%?(-%#*B(:/$#*"5:/<('4*
9*-"/9(7%#(6%"/"86*(7&/95B("5(54%?/(:/(G:<&#*(CHF@2((34:5(#":5*5('4*(#*"6(:/'*#*5'(#"'*B
'4&5(#*9&$:/<(/*'(7%#*:</(:/;*5'-*/'2((34*(9*$6:/*(:/(/*'(7%#*:</(:/;*5'-*/'(#*9&$*5('4*
5&..60(%7(9%66"#5(:/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*B(#":5:/<('4*(#*"6(*>$4"/<*(#"'*2(
34*('#"9*(8"6"/$*("65%(9*$6:/*5B(5:/$*(/*'(7%#*:</(:/;*5'-*/'B(4*/$*(/*'(*>.%#'5B("#*
6%?*#2((34*(4:<4*#(#*"6(:/'*#*5'(#"'*("65%(:/$#*"5*5('4*(K&"/':'0(%7(/"':%/"6(5";:/<2((D/
5&--"#0B(5";:/<(:/$#*"5*5B(9%-*5':$(:/;*5'-*/'(:/$#*"5*5B(/*'(7%#*:</(:/;*5'-*/'
9*$6:/*5B('4*(#*"6(:/'*#*5'(#"'*(:/$#*"5*5B('4*(#*"6(*>$4"/<*(#"'*(:/$#*"5*5B("/9('4*('#"9*
8"6"/$*(9*$#*"5*52
!"#$%&#'()#"$*(+(,%-."/0
30/18-2

Real Interest Rate
Real Interest Rate
Supply
r2
r1
D1
D2
Real Exchange Rate
S2
S1
E2
E1
Demand
Quantity of Dollars
>'/?@&1:(#0A(,$$@2.#%2/0:+((,0:=&':
12
L"."/(<*/*#"660(#&/5("('#"9*(5&#.6&5(8*$"&5*('4*(L"."/*5*(5";:/<(#"'*(:5(4:<4(#*6"':;*('%
L"."/*5*(9%-*5':$(:/;*5'-*/'2((34*(#*5&6'(:5(4:<4(/*'(7%#*:</(:/;*5'-*/'B(?4:$4(:5
-"'$4*9(80(4:<4(/*'(*>.%#'5B(#*5&6':/<(:/("('#"9*(5&#.6&52((34*(%'4*#(.%55:8:6:':*5(M4:<4
7%#*:</(9*-"/9(7%#(L"."/*5*(<%%95B(6%?(L"."/*5*(9*-"/9(7%#(7%#*:</(<%%95B("/9
5'#&$'&#"6(8"##:*#5("<":/5'(:-.%#'5(:/'%(L"."/N(?%&69("77*$'('4*(#*"6(*>$4"/<*(#"'*B(8&'
/%'('4*('#"9*(5&#.6&52
@2
E/(:/$#*"5*(:/(7%#*:</*#5O(:/$%-*(?%&69(:/$#*"5*(P2Q2(/*'(*>.%#'5B("5(7%#*:</*#5(?%&69
8&0(-%#*(P2Q2(<%%952((34:5(?%&69(:/$#*"5*('4*(9*-"/9(7%#(P2Q2(9%66"#5B(:/$#*"5:/<('4*
#*"6(*>$4"/<*(#"'*B("5(G:<&#*(CHFC(54%?52
!"#$%&#'()#"$*(+(,%-."/0
30/18-3
Real Exchange Rate
Supply
E2
E1
D1
D2
Quantity of Dollars
E(#*9&$':%/(:/('4*(P2Q2(<%;*#/-*/'(8&9<*'(9*7:$:'(?%&69(:/$#*"5*(/"':%/"6(5";:/<B
54:7':/<('4*(5&..60($&#;*(%7(6%"/"86*(7&/95('%('4*(#:<4'(:/(G:<&#*(CHFI2((34:5(?%&69
#*9&$*('4*(#*"6(:/'*#*5'(#"'*(:/('4*(P/:'*9(Q'"'*5B('4&5(:/$#*"5:/<(/*'(7%#*:</(:/;*5'-*/'B
"/9(#*9&$:/<('4*(#*"6(*>$4"/<*(#"'*2((34&5('4*(#*"6(;"6&*(%7('4*(9%66"#(?%&69(9*$6:/*B
/%'(:/$#*"5*("5('4*(R#*5:9*/'(5&<<*5'*92
S1
Real Interest Rate
S2
r1
r2
Demand
Real Exchange Rate
Real Interest Rate
C2
S1
S2
E1
E2
Demand
Quantity of Dollars
!"#$%&#'()#"$*(+(,%-."/0
30/18-4
E/(:/$#*"5*(:/(5";:/<(?%&69(54:7'('4*(5&..60(%7(6%"/"86*(7&/95('%('4*(#:<4'B("5(54%?/(:/
G:<&#*(CHFS2((34*(#*5&6'(?%&69(8*("(6%?*#(#*"6(:/'*#*5'(#"'*B(:/$#*"5*9(/*'(7%#*:</
:/;*5'-*/'B("/9("(6%?*#(#*"6(*>$4"/<*(#"'*2((34:5(:5('4*(%..%5:'*(%7(?4"'('4*($%6&-/:5'
4"9(:/(-:/92
S1
Real Interest Rate
S2
r1
r2
Demand
Real Exchange Rate
Real Interest Rate
I2
S1
S2
E1
E2
Demand
Quantity of Dollars
!"#$%&#'()#"$*(+(,%-."/0
30/18-5
S2
"2
E(9*$6:/*(:/('4*(K&"6:'0(%7(P2Q2(<%%95("'("(<:;*/(#*"6(*>$4"/<*(#"'*(?%&69
#*9&$*(/*'(*>.%#'5B(#*9&$:/<('4*(9*-"/9(7%#(9%66"#5B('4&5(54:7':/<('4*(9*-"/9
$&#;*(7%#(9%66"#5('%('4*(6*7'(:/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*B("5(54%?/(:/
G:<&#*(CHFT2

Real Interest Rate
Real Interest Rate
Supply
r1
Demand
Real Exchange Rate
Supply
E1
E2
D2
D1
Quantity of Dollars
82
34*(54:7'('%('4*(6*7'(%7('4*(9*-"/9($&#;*(7%#(9%66"#5(6*"95('%("(9*$6:/*(:/('4*(#*"6
*>$4"/<*(#"'*2((Q:/$*(/*'(7%#*:</(:/;*5'-*/'(:5(&/$4"/<*9B("/9(/*'(*>.%#'5(*K&"65(/*'
7%#*:</(:/;*5'-*/'B('4*#*(:5(/%($4"/<*(:/(*K&:6:8#:&-(:/(/*'(*>.%#'5(%#('4*('#"9*
8"6"/$*2
$2
34*($6":-(:/('4*(.%.&6"#(.#*55(:5(:/$%##*$'2((E($4"/<*(:/('4*(K&"6:'0(%7(P2Q2
<%%95($"//%'(6*"9('%("(#:5*(:/('4*('#"9*(9*7:$:'2((34*(9*$6:/*(:/('4*(#*"6(*>$4"/<*
#"'*(-*"/5('4"'(?*(<*'(7*?*#(7%#*:</(<%%95(:/(*>$4"/<*(7%#(%&#(<%%95B(5%(%&#
5'"/9"#9(%7(6:;:/<(-"0(9*$6:/*2
!"#$%&#'()#"$*(+(,%-."/0
30/18-6
T2
E(#*9&$':%/(:/(#*5'#:$':%/5(%7(:-.%#'5(?%&69(#*9&$*(/*'(*>.%#'5("'("/0(<:;*/(#*"6
*>$4"/<*(#"'*B('4&5(54:7':/<('4*(9*-"/9($&#;*(7%#(9%66"#5('%('4*(6*7'2((34*(54:7'(%7('4*
9*-"/9($&#;*(7%#(9%66"#5(6*"95('%("(9*$6:/*(:/('4*(#*"6(*>$4"/<*(#"'*B(?4:$4(:/$#*"5*5
/*'(*>.%#'52((Q:/$*(/*'(7%#*:</(:/;*5'-*/'(:5(&/$4"/<*9B("/9(/*'(*>.%#'5(*K&"65(/*'
7%#*:</(:/;*5'-*/'B('4*#*(:5(/%($4"/<*(:/(*K&:6:8#:&-(:/(/*'(*>.%#'5(%#('4*('#"9*
8"6"/$*2(()&'(8%'4(:-.%#'5("/9(*>.%#'5(#:5*B(5%(*>.%#'(:/9&5'#:*5(8*/*7:'2
U2
"2
V4*/('4*(G#*/$4(9*;*6%.("(5'#%/<('"5'*(7%#(,"6:7%#/:"(?:/*5B('4*(9*-"/9(7%#
9%66"#5(:/('4*(7%#*:</F$&##*/$0(-"#=*'(:/$#*"5*5("'("/0(<:;*/(#*"6(*>$4"/<*(#"'*B
"5(54%?/(:/(G:<&#*(CHFU2
Real Interest Rate
Real Interest Rate
Supply
r1
Demand
Real Exchange Rate
Supply
E2
E1
D2
D1
Quantity of Dollars
82
34*(#*5&6'(%7('4*(:/$#*"5*9(9*-"/9(7%#(9%66"#5(:5("(#:5*(:/('4*(#*"6(*>$4"/<*(#"'*2
$2
34*(K&"/':'0(%7(/*'(*>.%#'5(:5(&/$4"/<*92
!"#$%&#'()#"$*(+(,%-."/0
30/18-7
W2
E/(*>.%#'(5&85:90(:/$#*"5*5(/*'(*>.%#'5("'("/0(<:;*/(#*"6(*>$4"/<*(#"'*2((34:5($"&5*5
'4*(9*-"/9(7%#(9%66"#5('%(54:7'('%('4*(#:<4'(:/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*B("5(54%?/
:/(G:<&#*(CHFW2((34*(*77*$'(:5("(4:<4*#(#*"6(*>$4"/<*(#"'*B(8&'(/%($4"/<*(:/(/*'(*>.%#'52(
Q%('4*(5*/"'%#(:5(?#%/<X("/(*>.%#'(5&85:90(?:66(/%'(#*9&$*('4*('#"9*(9*7:$:'2

Real Interest Rate
Real Interest Rate
Supply
r1
Demand
Real Exchange Rate
Supply
E2
E1
D2
D1
Quantity of Dollars
Y2
!:<4*#(#*"6(:/'*#*5'(#"'*5(:/(Z&#%.*(6*"9('%(:/$#*"5*9(P2Q2(/*'(7%#*:</(:/;*5'-*/'2(
!:<4*#(/*'(7%#*:</(:/;*5'-*/'(6*"95('%(4:<4*#(/*'(*>.%#'5B(5:/$*(:/(*K&:6:8#:&-(/*'
*>.%#'5(*K&"6(/*'(7%#*:</(:/;*5'-*/'(M[\][GDN2((G:<&#*(CHFY(54%?5('4"'('4*(:/$#*"5*
:/(/*'(7%#*:</(:/;*5'-*/'(6*"95('%("(6%?*#(#*"6(*>$4"/<*(#"'*B(4:<4*#(#*"6(:/'*#*5'(#"'*B
"/9(:/$#*"5*9(/*'(*>.%#'52((
!"#$%&#'()#"$*(+(,%-."/0
30/18-8
NFI2
Real Interest Rate
Real Interest Rate
Supply
r2
r1
D1
NFI1
D2
Real Exchange Rate
S1
S2
E1
E2
Demand
Quantity of Dollars
1H2
112
"2
D7('4*(*6"5':$:'0(%7(P2Q2(/*'(7%#*:</(:/;*5'-*/'(?:'4(#*5.*$'('%('4*(#*"6(:/'*#*5'
#"'*(:5(;*#0(4:<4B('4*(6%?*#(#*"6(:/'*#*5'(#"'*('4"'(%$$&#5(8*$"&5*(%7('4*(:/$#*"5*
:/(.#:;"'*(5";:/<(?:66(:/$#*"5*(/*'(7%#*:</(:/;*5'-*/'("(6%'B(5%(P2Q2(9%-*5':$
:/;*5'-*/'(?%/O'(:/$#*"5*(-&$42
82
Q:/$*("/(:/$#*"5*(:/(.#:;"'*(5";:/<(#*9&$*5('4*(#*"6(:/'*#*5'(#"'*B(:/9&$:/<("/
:/$#*"5*(:/(/*'(7%#*:</(:/;*5'-*/'B('4*(#*"6(*>$4"/<*(#"'*(?:66(9*$6:/*2((D7('4*
*6"5':$:'0(%7(P2Q2(*>.%#'5(?:'4(#*5.*$'('%('4*(#*"6(*>$4"/<*(#"'*(:5(;*#0(6%?B(:'
?:66('"=*("(6"#<*(9*$6:/*(:/('4*(#*"6(*>$4"/<*(#"'*('%(:/$#*"5*(P2Q2(/*'(*>.%#'5(80
*/%&<4('%(-"'$4('4*(:/$#*"5*(:/(/*'(7%#*:</(:/;*5'-*/'2
"2
V4*/(Z&#%.*"/5(8*$%-*(-%#*(:/'*#*5'*9(:/(:/;*5':/<(:/(,"/"9"B(,"/"9"O5(/*'
7%#*:</(:/;*5'-*/'(9*$6:/*52((34:5(54:7'5('4*(9*-"/9(7%#(6%"/"86*(7&/95('%('4*
6*7'("/9('4*(/*'(7%#*:</(:/;*5'-*/'($&#;*('%('4*(6*7'B("5(54%?/(:/(G:<&#*(CHF1H2(
D/(*K&:6:8#:&-B(,"/"9:"/(/*'(7%#*:</(:/;*5'-*/'(9*$6:/*52
!"#$%&#'()#"$*(+(,%-."/0
30/18-9
82
E5('4*(7:<&#*(54%?5B('4*(#*"6(:/'*#*5'(#"'*(9*$6:/*5B('4&5(#*9&$:/<(,"/"9"O5
.#:;"'*(5";:/<2(()&'('4*(9*$6:/*(:/('4*(#*"6(:/'*#*5'(#"'*(:/$#*"5*5(,"/"9"O5
9%-*5':$(:/;*5'-*/'2
$2
Q:/$*(,"/"9"O5(9%-*5':$(:/;*5'-*/'(:/$#*"5*5B(:/('4*(6%/<(#&/B(,"/"9"O5($".:'"6
5'%$=(?:66(:/$#*"5*2
NFI1
Real Interest Rate
Real Interest Rate
Supply
r1
r2
D2
NFI2
D1
Real Exchange Rate
S2
S1
E2
E1
Demand
Quantity of Canadian Dollars
1@2
"2
D7('4*(L"."/*5*(9*$:9*9('4*0(/%(6%/<*#(?"/'*9('%(8&0(P2Q2("55*'5B(P2Q2(/*'
7%#*:</(:/;*5'-*/'(?%&69(:/$#*"5*B(:/$#*"5:/<('4*(9*-"/9(7%#(6%"/"86*(7&/95B("5
54%?/(:/(G:<&#*(CHF112((34*(#*5&6'(:5("(#:5*(:/(P2Q2(:/'*#*5'(#"'*5B("/(:/$#*"5*(:/
'4*(K&"/':'0(%7(P2Q2(5";:/<(M8*$"&5*(%7('4*(4:<4*#(:/'*#*5'(#"'*NB("/9(6%?*#(P2Q2
9%-*5':$(:/;*5'-*/'2
82
D/('4*(-"#=*'(7%#(7%#*:</(*>$4"/<*B('4*(#*"6(*>$4"/<*(#"'*(9*$6:/*5("/9('4*
8"6"/$*(%7('#"9*(:/$#*"5*52
!"#$%&#'()#"$*(+(,%-."/0
30/18-10
NFI2
Real Interest Rate
Real Interest Rate
Supply
r2
r1
D1
NFI1
D2
Real Exchange Rate
S1
S2
E1
E2
Demand
Quantity of Dollars
1C2
"2
34*(-%9*65(5&<<*5'('4"'(/"':%/"6(5";:/<($"/(8*(K&:'*(9:77*#*/'('4"/(9%-*5':$
:/;*5'-*/'2((V4*/(<%;*#/-*/'5(#&/(6"#<*(8&9<*'(9*7:$:'5B('4*(-%9*65(5&<<*5'
'4"'(/*'(7%#*:</(:/;*5'-*/'(?:66(8*(6%?B(5%(/"':%/"6(5";:/<(?:66(8*(6*55('4"/
9%-*5':$(:/;*5'-*/'2((34&5('4*(7:/9:/<('4"'(/"':%/"6(5";:/<(*K&"65(9%-*5':$
:/;*5'-*/'(5**-5('%($%/'#"9:$'('4*(-%9*652
82
D7(:/;*5'%#5("#*(&/?:66:/<('%("$$&-&6"'*('%%(-"/0("55*'5(7#%-("(5:/<6*(7%#*:</
$%&/'#0B('4*/(/*'(7%#*:</(:/;*5'-*/'(?%/O'(8*(;*#0(#*5.%/5:;*('%($4"/<*5(:/("
$%&/'#0O5(#*"6(:/'*#*5'(#"'*2((34&5("(<%;*#/-*/'(8&9<*'(9*7:$:'(?%&69(6*"9('%("
6"#<*(*/%&<4(:/$#*"5*(:/('4*(#*"6(:/'*#*5'(#"'*(5%('4"'(:'(?%&69(#*9&$*(9%-*5':$
:/;*5'-*/'B(?:'4(6:''6*($4"/<*(:/(/*'(7%#*:</(:/;*5'-*/'2((34&5(/"':%/"6(5";:/<
"/9(9%-*5':$(:/;*5'-*/'(?%&69(-%;*($6%5*60('%<*'4*#B(#*$%/$:6:/<('4*(7"$'("/9
'4*(-%9*652
$2
D7(:/;*5'%#5("#*(&/?:66:/<('%("$$&-&6"'*('%%(-"/0("55*'5(7#%-('4*(P/:'*9(Q'"'*5B
'4*(P2Q2('#"9*(9*7:$:'(?%&69/O'(8*(;*#0(4:<4(*;*/(:7('4*(P2Q2(8&9<*'(9*7:$:'
#*-":/5(6"#<*2((D/5'*"9B(P2Q2(9%-*5':$(:/;*5'-*/'(?%&69(#*-":/(6%?2
!"#$%&#'()#"$*(+(,%-."/0
30/18-11
!"#$%&'()*+((,--'&-#%&(.&/#01(#01(,--'&-#%&(23$$45
63&7%8907(:9'(;&<8&=+((,07=&'7
12
345&#*(6171(89%:8("55#*5"'*(;*-"/;<(89%#'7#&/("55#*5"'*(8&..=0<("/;(=%/57#&/
"55#*5"'*(8&..=02
Price Level
Long-run
aggregate
supply
Short-run
aggregate
supply
Aggregate
demand
Quantity of Output
>2
?9*("55#*5"'*7;*-"/;($&#@*(48(;%:/:"#;(8=%.4/5(A*$"&8*B((C1D("(;*$#*"8*(4/('9*(.#4$*
=*@*=(-"E*8($%/8&-*#8(F**=(-%#*(:*"='90<(:94$9(4/('&#/(*/$%&#"5*8('9*-('%(8.*/;
-%#*<(8%('9*#*G8("(="#5*#(H&"/'4'0(%F(5%%;8("/;(8*#@4$*8(;*-"/;*;(CI45%&G8(:*"='9
*FF*$'DJ(C>D("(=%:*#(.#4$*(=*@*=(#*;&$*8('9*(4/'*#*8'(#"'*<(*/$%&#"54/5(5#*"'*#(8.*/;4/5
%/(4/@*8'-*/'<(8%('9*#*G8("(="#5*#(H&"/'4'0(%F(5%%;8("/;(8*#@4$*8(;*-"/;*;(CK*0/*8G8
4/'*#*8'7#"'*(*FF*$'DJ(C6D("(F"==(4/('9*(L2M2(.#4$*(=*@*=($"&8*8(L2M2(4/'*#*8'(#"'*8('%(F"==<(8%
'9*(#*"=(*N$9"/5*(#"'*(;*.#*$4"'*8<(8'4-&="'4/5(L2M2(/*'(*N.%#'8<(8%('9*#*G8("(="#5*#
H&"/'4'0(%F(5%%;8("/;(8*#@4$*8(;*-"/;*;(CO&/;*==73=*-4/5G8(*N$9"/5*7#"'*(*FF*$'D2
62
?9*(=%/57#&/("55#*5"'*(8&..=0($&#@*(48(@*#'4$"=(A*$"&8*(4/('9*(=%/5(#&/<("/(*$%/%-0G8
8&..=0(%F(5%%;8("/;(8*#@4$*8(;*.*/;8(%/(4'8(8&..=4*8(%F($".4'"=("/;(="A%#("/;(%/('9*
"@"4="A=*(.#%;&$'4%/('*$9/%=%50(&8*;('%('&#/($".4'"=("/;(="A%#(4/'%(5%%;8("/;(8*#@4$*82(
?9*(.#4$*(=*@*=(;%*8(/%'("FF*$'('9*8*(=%/57#&/(;*'*#-4/"/'8(%F(#*"=(PQI2
R2
?9#**('9*%#4*8('9"'(*N.="4/(:90('9*(89%#'7#&/("55#*5"'*78&..=0($&#@*(48(&.:"#;(8=%.4/5
"#*B((C1D('9*(/*:($="884$"=(-48.*#$*.'4%/8('9*%#0<(4/(:94$9("(=%:*#(.#4$*(=*@*=($"&8*8
-48.*#$*.'4%/8("A%&'(#*="'4@*(.#4$*8<("/;('9*8*(-48.*#$*.'4%/8(4/;&$*(8&..=4*#8('%
!"#$%&#'()#"$*(+(,%-."/0
31/19-1
#*8.%/;('%('9*(=%:*#(.#4$*(=*@*=(A0(;*$#*"84/5('9*(H&"/'4'0(%F(5%%;8("/;(8*#@4$*8
8&..=4*;J(C>D('9*(K*0/*84"/(8'4$E07:"5*('9*%#0<(4/(:94$9("(=%:*#(.#4$*(=*@*=(-"E*8
*-.=%0-*/'("/;(.#%;&$'4%/(=*88(.#%F4'"A=*(A*$"&8*(:"5*8(;%(/%'(";S&8'(4--*;4"'*=0('%
'9*(.#4$*(=*@*=<(8%(F4#-8(#*;&$*('9*(H&"/'4'0(%F(5%%;8("/;(8*#@4$*8(8&..=4*;J(C6D('9*(/*:
K*0/*84"/(8'4$E07.#4$*('9*%#0<(4/(:94$9("/(&/*N.*$'*;(F"==(4/('9*(.#4$*(=*@*=(=*"@*8
8%-*(F4#-8(:4'9(9459*#7'9"/7;*84#*;(.#4$*8(A*$"&8*(/%'("==(.#4$*8(";S&8'(4/8'"/'=0('%
$9"/54/5($%/;4'4%/8<(:94$9(;*.#*88*8(8"=*8("/;(4/;&$*8(F4#-8('%(#*;&$*('9*(H&"/'4'0(%F
5%%;8("/;(8*#@4$*8('9*0(.#%;&$*2
?9*("55#*5"'*7;*-"/;($&#@*(-459'(894F'('%('9*(=*F'(:9*/(8%-*'94/5(C%'9*#('9"/("(#48*(4/
'9*(.#4$*(=*@*=D($"&8*8("(#*;&$'4%/(4/($%/8&-.'4%/(8.*/;4/5(C8&$9("8("(;*84#*(F%#
4/$#*"8*;(8"@4/5D<("(#*;&$'4%/(4/(4/@*8'-*/'(8.*/;4/5(C8&$9("8(4/$#*"8*;('"N*8(%/('9*
#*'&#/8('%(4/@*8'-*/'D<(;*$#*"8*;(5%@*#/-*/'(8.*/;4/5(C8&$9("8("($&'A"$E(4/(;*F*/8*
8.*/;4/5D<(#*;&$*;(/*'(*N.%#'8(C8&$9("8(:9*/(F%#*45/(*$%/%-4*8(5%(4/'%(#*$*884%/<(8%
%&#(*N.%#'8(F"==D<(%#("(;*$#*"8*(4/('9*(-%/*0(8&..=0(C8&$9("8(:9*/('9*(3*;*#"=(U*8*#@*
&8*8(%.*/7-"#E*'(8"=*8D2
345&#*(617>('#"$*8('9#%&59('9*(8'*.8(%F(8&$9("(894F'(4/("55#*5"'*(;*-"/;2((?9*(*$%/%-0
A*54/8(4/(*H&4=4A#4&-<(:4'9(89%#'7#&/("55#*5"'*(8&..=0<(MUVM <(4/'*#8*$'4/5("55#*5"'*
;*-"/;<(VQ <("'(.%4/'(V2((W9*/('9*("55#*5"'*7;*-"/;($&#@*(894F'8('%('9*(=*F'('%(VQ <
'9*(*$%/%-0(-%@*8(F#%-(.%4/'(V('%(.%4/'()<(#*;&$4/5('9*(.#4$*(=*@*=("/;('9*(H&"/'4'0
%F(%&'.&'2((X@*#('4-*<($%8'8(%F(.#%;&$'4%/(;*$=4/*<(894F'4/5('9*(89%#'7#&/("55#*5"'*7
8&..=0($&#@*(;%:/('%(MUVM <("/;(-%@4/5('9*(*$%/%-0(F#%-(.%4/'()('%(.%4/'(,<(:94$9
48(A"$E(%/('9*(=%/57#&/("55#*5"'*(8&..=0($&#@*("/;(9"8("(=%:*#(.#4$*(=*@*=2
Long-run
aggregate
supply
SRAS1
SRAS2
A
Price Level
T2
B
C
AD1
AD2
Quantity of Output
!"#$%&#'()#"$*(+(,%-."/0
31/19-2
Y2
?9*("55#*5"'*78&..=0($&#@*(-459'(894F'('%('9*(=*F'(A*$"&8*(%F("(;*$=4/*(4/('9*(*$%/%-0G8
$".4'"=(8'%$E<(.%.&="'4%/<(%#(.#%;&$'4@4'0<("==(%F(:94$9(894F'(A%'9('9*(=%/57#&/("/;(89%#'7
#&/("55#*5"'*(8&..=0($&#@*8('%('9*(=*F'<(%#(A*$"&8*(%F("/(4/$#*"8*(4/('9*(*N.*$'*;(.#4$*
=*@*=<(:94$9(894F'8(S&8'('9*(89%#'7#&/("55#*5"'*78&..=0($&#@*(C/%'('9*(=%/57#&/
"55#*5"'*78&..=0($&#@*D('%('9*(=*F'2
345&#*(6176('#"$*8('9#%&59('9*(*FF*$'8(%F(8&$9("(894F'2((?9*(*$%/%-0(8'"#'8(4/
*H&4=4A#4&-("'(.%4/'(V2((?9*("55#*5"'*78&..=0($&#@*('9*/(894F'8('%('9*(=*F'(F#%-(MUVM
'%(MUVM 2((?9*(/*:(*H&4=4A#4&-(48("'(.%4/'()<('9*(4/'*#8*$'4%/(%F('9*("55#*5"'*7;*-"/;
$&#@*("/;(MUVM 2((V8('4-*(5%*8(%/<('9*(*$%/%-0(#*'&#/8('%(=%/57#&/(*H&4=4A#4&-("'
.%4/'(V<("8('9*(89%#'7#&/("55#*5"'*(8&..=0($&#@*(894F'8(A"$E('%(4'8(%#454/"=(.%84'4%/2
Long-run
aggregate
supply
SRAS2
Price Level
SRAS1
B
A
Aggregate
demand
Quantity of Output
>'9?4&/7(#01(,$$48@#%8907+((,07=&'7
12
Z/@*8'-*/'(48(-%#*(@"#4"A=*('9"/($%/8&-*#(8.*/;4/5(%@*#('9*(A&84/*88($0$=*(A*$"&8*
F4#-8(.&'(%FF(A&04/5($".4'"=(C'9*0(;%/G'(*N."/;(F"$'%#4*8(%#(A&0(/*:(*H&4.-*/'D(4/
#*$*884%/82((I*%.=*("#*("=8%(=*88(=4E*=0('%(A&4=;(/*:(9%&8*8(4/(#*$*884%/82((O&$9(%F
$%/8&-*#(8.*/;4/5(48(%/(/*$*884'4*8<(=4E*(F%%;<(:94$9(;%/G'(;*$=4/*("8(-&$9(4/
#*$*884%/82((Q&#"A=*(5%%;8<(8&$9("8(F&#/4'&#*("/;($"#(.&#$9"8*8<("#*(-%#*(@%="'4=*(%@*#
'9*(A&84/*88($0$=*('9"/(/%/;&#"A=*(5%%;8<(8&$9("8(F%%;("/;($=%'94/5<(%#(8*#@4$*8<(8&$9
"8(9"4#$&'8("/;(-*;4$"=($"#*<(F%#('9*(8"-*(#*"8%/2((I*%.=*(.&'(%FF(A&04/5(;&#"A=*(5%%;8
"/;(S&8'(-"E*(;%(:4'9(%=;*#($"#8("/;(F&#/4'&#*(:9*/(*$%/%-4$('4-*8("#*(A";2
>2
"2
?9*($&##*/'(8'"'*(%F('9*(*$%/%-0(48(89%:/(4/(345&#*(617R2((?9*("55#*5"'*7
;*-"/;($&#@*("/;(89%#'7#&/("55#*5"'*78&..=0($&#@*(4/'*#8*$'("'("(.%4/'('%('9*
=*F'(%F(=%/57#&/("55#*5"'*(8&..=02
!"#$%&#'()#"$*(+(,%-."/0
31/19-3
Price Level
Long-run
aggregate
Short-run
supply
aggregate
supply
Aggregate
demand
Quantity of Output
62
A2
XE&/G8([":(8&55*8'8('9"'(F%#(*@*#0(.*#$*/'"5*(.%4/'('9"'(#*"=(PQI(5#%:'9(48
A*=%:(4'8(.%'*/'4"=(5#%:'9(#"'*(%F(6(.*#$*/'<('9*(&/*-.=%0-*/'(#"'*(:4==(#48*(A0
1\>(.*#$*/'"5*(.%4/'2((M%(4F(#*"=(PQI(9"8(;*$=4/*;(A0(1(.*#$*/'<(PQI(5#%:'9(48
R(.*#$*/'"5*(.%4/'8(A*=%:(.%'*/'4"=(5#%:'9(%F(6(.*#$*/'<(8%('9*(&/*-.=%0-*/'
#"'*(:4==(A*(R(N(1\>(](>(.*#$*/'"5*(.%4/'8(-%#*('9"/(4'(:"8(="8'(0*"#2
$2
W4'9(*-.=%0-*/'(A*4/5(&/;*#&'4=4^*;<($".4'"=(:4==("=8%(A*(&/;*#&'4=4^*;2((Z/("
#*$*884%/<($"."$4'0(&'4=4^"'4%/(48(A*=%:(4'8(=%/57#&/("@*#"5*2
"2
W9*/('9*(L/4'*;(M'"'*8(*N.*#4*/$*8("(:"@*(%F(4--45#"'4%/<('9*(="A%#(F%#$*
4/$#*"8*8<(8%(=%/57#&/("55#*5"'*(8&..=0(4/$#*"8*8("8('9*#*("#*(-%#*(.*%.=*(:9%
$"/(.#%;&$*(%&'.&'2
A2
W9*/('9*(L/4'*;(V&'%(W%#E*#8(&/4%/(:4/8("/(&/*N.*$'*;=0(9459(:"5*(4/$#*"8*
4/(4'8(/*:($%/'#"$'<(.#%;&$'4%/($%8'8(#48*(4/('9*(89%#'(#&/<(A&'(4/('9*(=%/5(#&/
'9*#*G8(/%(*FF*$'(%/(="A%#(%#($".4'"=<(8%(=%/57#&/("55#*5"'*(8&..=0(;%*8/G'
$9"/5*2((C_%&($%&=;<(9%:*@*#<("#5&*('9"'(4F('9*(#48*(4/('9*(&/4%/(:"5*(:*#*
8&FF4$4*/'('%(#"48*("&'%-"E*#8(="A%#($%8'8("A%@*('9*(*H&4=4A#4&-(=*@*=<(=*";4/5
'9*-('%($&'(A"$E(%/(="A%#("/;(.#%;&$'4%/<('9*#*(:%&=;(A*("(=%/57#&/(*FF*$'<
;*$#*"84/5("55#*5"'*(8&..=02D(
$2
W9*/(Z/'*=(4/@*/'8("(/*:("/;(-%#*(.%:*#F&=($%-.&'*#($94.<(.#%;&$'4@4'0
4/$#*"8*8<(8%(=%/57#&/("55#*5"'*(8&..=0(4/$#*"8*8("8(-%#*(%&'.&'($"/(A*
.#%;&$*;(:4'9('9*(8"-*(4/.&'82
;2
W9*/("(8*@*#*(9&##4$"/*(;"-"5*8(F"$'%#4*8("=%/5('9*(`"8'(,%"8'<('9*($".4'"=
8'%$E(48(8-"==*#<(8%(=%/57#&/("55#*5"'*(8&..=0(;*$=4/*82
!"#$%&#'()#"$*(+(,%-."/0
31/19-4
R2
Z/(345&#*(617a(4/('9*('*N'A%%E<('9*(&/*-.=%0-*/'(#"'*("'(.%4/'()(48(9459*#('9"/('9*
&/*-.=%0-*/'(#"'*("'(.%4/'(V(A*$"&8*(%&'.&'(48(=%:*#("'()('9"/("'(V2((?9*
&/*-.=%0-*/'(#"'*("'(.%4/'(,(48('9*(8"-*("8('9"'("'(.%4/'(V(A*$"&8*(%&'.&'(48('9*(8"-*
"'(A%'9(.%4/'82((V$$%#;4/5('%('9*(8'4$E07:"5*(*N.="/"'4%/(%F('9*(89%#'7#&/("55#*5"'*
8&..=0($&#@*<(%&'.&'(48(=%:*#("'(.%4/'()('9"/("'(.%4/'(V(A*$"&8*(:"5*8(9"@*/G'
";S&8'*;2((?9*(/%-4/"=(:"5*("'(.%4/'8(V("/;()("#*('9*(8"-*<(A&'(84/$*('9*(.#4$*(=*@*=(48
=%:*#("'(.%4/'()('9*(#*"=(:"5*(48(9459*#<(8%(F4#-8(94#*(F*:*#(:%#E*#8("/;('9&8(%&'.&'(48
=%:*#2((I%4/'(,(48(%/('9*(=%/57#&/("55#*5"'*(8&..=0($&#@*<("8(48(.%4/'(V<(8%('9*(#*"=
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/%-4/"=(:"5*("'(.%4/'(,(-&8'(A*(=%:*#2
T2
"2
?9*(8'"'*-*/'('9"'(b'9*("55#*5"'*7;*-"/;($&#@*(8=%.*8(;%:/:"#;(A*$"&8*(4'(48
'9*(9%#4^%/'"=(8&-(%F('9*(;*-"/;($&#@*8(F%#(4/;4@4;&"=(5%%;8b(48(F"=8*2((?9*
"55#*5"'*7;*-"/;($&#@*(8=%.*8(;%:/:"#;(A*$"&8*("(F"==(4/('9*(.#4$*(=*@*=(#"48*8
'9*(%@*#"==(H&"/'4'0(%F(5%%;8("/;(8*#@4$*8(;*-"/;*;('9#%&59(I45%&G8(:*"='9
*FF*$'<(K*0/*8G8(4/'*#*8'7#"'*(*FF*$'<("/;(O&/;*==73=*-4/5G8(*N$9"/5*7#"'*
*FF*$'2
A2
?9*(8'"'*-*/'('9"'(b'9*(=%/57#&/("55#*5"'*78&..=0($&#@*(48(@*#'4$"=(A*$"&8*
*$%/%-4$(F%#$*8(;%(/%'("FF*$'(=%/57#&/("55#*5"'*(8&..=0b(48(F"=8*2((`$%/%-4$
F%#$*8(%F(@"#4%&8(E4/;8(C8&$9("8(.%.&="'4%/("/;(.#%;&$'4@4'0D(;%("FF*$'(=%/57#&/
"55#*5"'*(8&..=02((?9*(=%/57#&/("55#*5"'*78&..=0($&#@*(48(@*#'4$"=(A*$"&8*('9*
.#4$*(=*@*=(;%*8/G'("FF*$'(=%/57#&/("55#*5"'*(8&..=02
$2
?9*(8'"'*-*/'('9"'(b4F(F4#-8(";S&8'*;('9*4#(.#4$*8(*@*#0(;"0<('9*/('9*(89%#'7#&/
"55#*5"'*78&..=0($&#@*(:%&=;(A*(9%#4^%/'"=b(48(F"=8*2((?9*(89%#'7#&/("55#*5"'*7
8&..=0($&#@*(:%&=;(A*(@*#'4$"=(4/('9"'($"8*<(/%'(9%#4^%/'"=2
;2
?9*(8'"'*-*/'('9"'(b:9*/*@*#('9*(*$%/%-0(*/'*#8("(#*$*884%/<(4'8(=%/57#&/
"55#*5"'*78&..=0($&#@*(894F'8('%('9*(=*F'b(48(F"=8*2((V/(*$%/%-0($%&=;(*/'*#("
#*$*884%/(4F('9*("55#*5"'*(8&..=0($&#@*(%#("55#*5"'*(;*-"/;($&#@*(894F'('%('9*
=*F'2
"2
V$$%#;4/5('%('9*(/*:($="884$"=(-48.*#$*.'4%/8('9*%#0<('9*(*$%/%-0(48(4/("
#*$*884%/(:9*/('9*(.#4$*(=*@*=(48(A*=%:(:9"'(:"8(*N.*$'*;2((X@*#('4-*<("8
.*%.=*(%A8*#@*('9*(=%:*#(.#4$*(=*@*=<('9*4#(*N.*$'"'4%/8(:4==(";S&8'<("/;('9*
*$%/%-0(:4==(#*'&#/('%('9*(=%/57#&/("55#*5"'*78&..=0($&#@*2
Y2
V$$%#;4/5('%('9*(K*0/*84"/(8'4$E07:"5*('9*%#0<('9*(*$%/%-0(48(4/("(#*$*884%/
A*$"&8*('9*(.#4$*(=*@*=(9"8(;*$=4/*;(8%('9"'(#*"=(:"5*8("#*('%%(9459<('9&8(="A%#
;*-"/;(48('%%(=%:2((X@*#('4-*<("8(/%-4/"=(:"5*8("#*(";S&8'*;(8%('9"'(#*"=(:"5*8
;*$=4/*<('9*(*$%/%-0(#*'&#/8('%(F&==(*-.=%0-*/'2
!"#$%&#'()#"$*(+(,%-."/0
31/19-5
V$$%#;4/5('%('9*(/*:(K*0/*84"/(8'4$E07.#4$*('9*%#0<('9*(*$%/%-0(48(4/("
#*$*884%/(A*$"&8*(/%'("==(.#4$*8(F"==(*/%&592((X@*#('4-*<(F4#-8("#*("A=*('%(";S&8'
'9*4#(.#4$*8(-%#*(F&==0<("/;('9*(*$%/%-0(#*'&#/8('%('9*(=%/57#&/("55#*5"'*7
8&..=0($&#@*2
A2
a2
?9*(8.**;(%F('9*(#*$%@*#0(4/(*"$9('9*%#0(;*.*/;8(%/(9%:(H&4$E=0(.#4$*
*N.*$'"'4%/8(C4/('9*(/*:($="884$"=(-48.*#$*.'4%/8('9*%#0D<(:"5*8(C4/('9*
K*0/*84"/(8'4$E07:"5*('9*%#0D<("/;(.#4$*8(C4/('9*(/*:(K*0/*84"/(8'4$E07.#4$*
'9*%#0D(";S&8'2
345&#*(617T(;*.4$'8("/(*$%/%-0(4/("(#*$*884%/2((?9*(89%#'7#&/("55#*5"'*(8&..=0($&#@*
48(MUVM ("/;('9*(*$%/%-0(48("'(*H&4=4A#4&-("'(.%4/'(V<(:94$9(48('%('9*(=*F'(%F('9*(=%/57
#&/("55#*5"'*78&..=0($&#@*2((ZF(.%=4$0-"E*#8('"E*(/%("$'4%/<('9*(*$%/%-0(:4==(#*'&#/('%
'9*(=%/57#&/("55#*5"'*78&..=0($&#@*(%@*#('4-*("8('9*(89%#'7#&/("55#*5"'*78&..=0($&#@*
894F'8('%('9*(#459'('%(MUVM 2((?9*(*$%/%-0G8(/*:(*H&4=4A#4&-(48("'(.%4/'()2
Long-run
aggregate
supply
Price Level
SRAS1
SRAS2
A
B
Aggregate
demand
Quantity of Output
c2
"2
ZF(.*%.=*(A*=4*@*('9"'(4/F="'4%/(:4==(A*(9459(%@*#('9*(/*N'(0*"#<(:%#E*#8(:4==
:"/'(9459*#(/%-4/"=(:"5*82((ZF('9*(.#4$*(=*@*=(;%*8/G'(#48*("8(-&$9("8(:"5*8(;%<
#*"=(:"5*8(:4==(4/$#*"8*<(8%(F4#-8(:%/G'(94#*("8(-"/0(:%#E*#82
A2
345&#*(617Y(89%:8('9*(*$%/%-0(8'"#'4/5(%&'("'(.%4/'(V(%/(89%#'7#&/("55#*5"'*7
8&..=0($&#@*(MUVM 2(((W4'9(9459*#(/%-4/"=(:"5*8<('9*(89%#'7#&/("55#*5"'*7
8&..=0($&#@*(:4==(894F'('%('9*(=*F'('%(MUVM 2((?9*(/*:(*H&4=4A#4&-(48("'(.%4/'()<
:4'9(%&'.&'(=*88('9"/(=%/57#&/("55#*5"'*(8&..=02((Z/('9*(89%#'(#&/<('9*(.#4$*(=*@*=
#48*8("/;(%&'.&'(F"==82((Z/('9*(=%/57#&/<('9*(*$%/%-0(:4==(#*'&#/('%(.%4/'(V<("8
'9*(;*$=4/*(4/(%&'.&'(*@*/'&"==0(=*";8('%("(;*$=4/*(4/('9*(.#4$*(=*@*=("/;('9*
89%#'7#&/("55#*5"'*78&..=0($&#@*(#*'&#/8('%(MUVM 2
!"#$%&#'()#"$*(+(,%-."/0
31/19-6
$2
Z/('9*(89%#'7#&/<(*N.*$'"'4%/8(%F(9459*#(4/F="'4%/(:*#*(8%-*:9"'("$$&#"'*<("8('9*
.#4$*(=*@*=(48(9459*#("'(.%4/'()('9"/("'(.%4/'(V2(()&'('9*0(:*#*(:#%/5(4/('9*(=%/5
#&/2
Long-run
aggregate
supply
Price Level
SRAS2
B
SRAS1
A
Aggregate
demand
Quantity of Output
d2
I%=4$0-"E*#8(-459'(:"/'('%('"E*("$'4%/(4/("(#*$*884%/(A*$"&8*(4'(-"0('"E*('9*(*$%/%-0
"(=%/5('4-*('%(#*$%@*#(%/(4'8(%:/2(()0(&84/5(-%/*'"#0(%#(F48$"=(.%=4$0<('9*(5%@*#/-*/'
$"/(#*;&$*('9*(=*/5'9(%F("(#*$*884%/2
1e2
"2
ZF(9%&8*9%=;8(;*$4;*('%(8"@*("(="#5*#(89"#*(%F('9*4#(4/$%-*<('9*0(-&8'(8.*/;(=*88
%/($%/8&-*#(5%%;8<(8%('9*("55#*5"'*7;*-"/;($&#@*(894F'8('%('9*(=*F'<("8(89%:/
4/(345&#*(617a2((?9*(*H&4=4A#4&-($9"/5*8(F#%-(.%4/'(V('%(.%4/'()<(8%('9*(.#4$*
=*@*=(;*$=4/*8("/;(%&'.&'(;*$=4/*82
Price Level
Long-run
aggregate
supply
Short-run
aggregate
supply
A
B
AD1
AD2
Quantity of Output
!"#$%&#'()#"$*(+(,%-."/0
31/19-7
A2
ZF(3=%#4;"(%#"/5*(5#%@*8(8&FF*#("(.#%=%/5*;(.*#4%;(%F(A*=%:7F#**^4/5
'*-.*#"'&#*8<('9*(%#"/5*(9"#@*8'(:4==(A*(#*;&$*;2((?948(48(#*.#*8*/'*;(4/(345&#*
617c(A0("(894F'('%('9*(=*F'(4/('9*(89%#'7#&/("55#*5"'*78&..=0($&#@*2((?9*
*H&4=4A#4&-($9"/5*8(F#%-(.%4/'(V('%(.%4/'()<(8%('9*(.#4$*(=*@*=(#48*8("/;(%&'.&'
;*$=4/*82
Price Level
Long-run
aggregate
supply
SRAS2
SRAS1
B
A
Aggregate
demand
Quantity of Output
ZF('9*(A4#'9#"'*(89%%'8(&.(/4/*(-%/'98("F'*#("(8*@*#*(:4/'*#(A=4^^"#;<(-"/0(*FF*$'8("#*
.%884A=*2((?9*(9459*#(.%.&="'4%/(:4==(4/$#*"8*("55#*5"'*(;*-"/;<('9*(/&-A*#(%F(.*%.=*
=*"@4/5('9*(:%#EF%#$*('%(54@*(A4#'9(:4==(#48*<(#*;&$4/5("55#*5"'*(8&..=0<(A&'('9*
4/$#*"8*;(.%.&="'4%/(:4==(*@*/'&"==0(=*";('%("/(4/$#*"8*;(="A%#(F%#$*<(4/$#*"84/5
"55#*5"'*(8&..=0(4/('9*(@*#0(=%/5(#&/2((ZF('9*(F4#8'(*FF*$'(9"8('9*(8'#%/5*8'(4-."$'(%/('9*
*$%/%-0<('9*(#*8&='(48(89%:/(4/(345&#*(617d2((?9*(*H&4=4A#4&-($9"/5*8(F#%-(.%4/'(V('%
.%4/'()<(8%('9*(.#4$*(=*@*=(#48*8("/;(%&'.&'(#48*82
Long-run
aggregate
supply
Price Level
$2
B
A
Short-run
aggregate
supply
AD2
AD1
Quantity of Output
!"#$%&#'()#"$*(+(,%-."/0
31/19-8
112
"2
ZF(F4#-8(A*$%-*(%.'4-48'4$("A%&'(F&'&#*(A&84/*88($%/;4'4%/8("/;(4/@*8'("(=%'<('9*
#*8&='(48(89%:/(4/(345&#*(6171e2((?9*(*$%/%-0(A*54/8("'(.%4/'(V(:4'9
"55#*5"'*7;*-"/;($&#@*(VQ ("/;(89%#'7#&/("55#*5"'*78&..=0($&#@*(MUVM 2((?9*
*H&4=4A#4&-(9"8(.#4$*(=*@*=(I ("/;(%&'.&'(=*@*=(_ 2((Z/$#*"8*;(%.'4-48-(=*";8('%
5#*"'*#(4/@*8'-*/'<(8%('9*("55#*5"'*7;*-"/;($&#@*(894F'8('%(VQ 2((f%:('9*
*$%/%-0(48("'(.%4/'()<(:4'9(.#4$*(=*@*=(I ("/;(%&'.&'(=*@*=(_ 2((?9*("55#*5"'*
H&"/'4'0(%F(%&'.&'(8&..=4*;(#48*8(A*$"&8*('9*(.#4$*(=*@*=(9"8(#48*/("/;(.*%.=*
9"@*(-48.*#$*.'4%/8("A%&'('9*(.#4$*(=*@*=<("/;\%#(:"5*8("#*(8'4$E0<("/;\%#
.#4$*8("#*(8'4$E0<("==(%F(:94$9($"&8*(%&'.&'(8&..=4*;('%(4/$#*"8*2
A2
X@*#('4-*<("8('9*(-48.*#$*.'4%/8(%F('9*(.#4$*(=*@*=(;48"..*"#<("/;\%#(:"5*8
";S&8'<("/;\%#(.#4$*8(";S&8'<('9*(89%#'7#&/("55#*5"'*78&..=0($&#@*(894F'8(&.('%
MUVM ("/;('9*(*$%/%-0(5*'8('%(*H&4=4A#4&-("'(.%4/'(,<(:4'9(.#4$*(=*@*=(I ("/;
%&'.&'(=*@*=(_ 2((?9*(H&"/'4'0(%F(%&'.&'(;*-"/;*;(;*$=4/*8("8('9*(.#4$*(=*@*=
#48*8(A*$"&8*(%F(I45%&G8(:*"='9(*FF*$'<(K*0/*8G8(4/'*#*8'7#"'*(*FF*$'<("/;
O&/;*==73=*-4/5G8(*N$9"/5*7#"'*(*FF*$'2
$2
?9*(4/@*8'-*/'(A%%-(-459'("FF*$'('9*(=%/57#&/("55#*5"'*78&..=0($&#@*(A*$"&8*
9459*#(4/@*8'-*/'('%;"0(-*"/8("(="#5*#($".4'"=(8'%$E(4/('9*(F&'&#*<('9&8(9459*#
.#%;&$'4@4'0("/;(%&'.&'2
Price Level
Long-run
aggregate
supply
SRAS2
SRAS1
C
P3
B
P2
P1
AD2
AD1
Y1
Y2
Quantity of Output
1>2
"2
ZF(9%&8*9%=;8(;*$4;*('%(9%=;(9459*#(-%/*0(A"="/$*8('9"/(A*F%#*<('9*0G==(;#4@*(&.
4/'*#*8'(#"'*8(A*$"&8*(.*%.=*(:4==(A*(8*==4/5(4/'*#*8'7A*"#4/5("88*'82
A2
!459*#(4/'*#*8'(#"'*8(:4==(#*;&$*(4/@*8'-*/'(8.*/;4/5(A*$"&8*('9*($%8'(%F
4/@*8'4/5(:4==(A*(9459*#2
!"#$%&#'()#"$*(+(,%-."/0
31/19-9
$2
!459*#(4/'*#*8'(#"'*8(:4==(#*;&$*(/*'(F%#*45/(4/@*8'-*/'<(:94$9(4/('&#/(:4==(#"48*
'9*(#*"=(*N$9"/5*(#"'*<(8%('9*(@"=&*(%F('9*(;%=="#(#48*82
;2
V(9459*#(@"=&*(%F('9*(;%=="#(#*;&$*8(/*'(*N.%#'8<(84/$*(L2M2(5%%;8(A*$%-*(-%#*
*N.*/84@*("A#%";("/;(F%#*45/(5%%;8(A*$%-*($9*".*#(4/('9*(L/4'*;(M'"'*82
*2
V55#*5"'*(;*-"/;(;*$=4/*8(A*$"&8*(4/@*8'-*/'("/;(/*'(*N.%#'8("#*(=%:*#2
!"#$%&#'()#"$*(+(,%-."/0
31/19-10
!"#$%&'()*+((,"&(-./01&.2&(3/(43.&%#'5(#.6(7892#0(:30825(
3.(;<<'&<#%&(=&>#.6
?1&9%83.9(/3'(@&A8&B+((;.9B&'9
12
34*('4*%#0(%5(678&797'0(.#*5*#*/$*(7:(;*0/*:<:('4*%#0(%5(4%=('4*(7/'*#*:'(#"'*(7:
9*'*#-7/*92((>'(*?.6"7/:('4*(9%=/="#9(:6%.*(%5('4*("@@#*@"'*A9*-"/9($&#B*(C*$"&:*D(
E1F("(47@4*#(.#7$*(6*B*6(#"7:*:(-%/*0(9*-"/9G(EHF(47@4*#(-%/*0(9*-"/9(6*"9:('%("
47@4*#(7/'*#*:'(#"'*G("/9(EIF("(47@4*#(7/'*#*:'(#"'*(#*9&$*:('4*(8&"/'7'0(%5(@%%9:("/9
:*#B7$*:(9*-"/9*92
H2
J(9*$#*":*(7/('4*(-%/*0(:&..60(:475':('4*(-%/*0A:&..60($&#B*('%('4*(6*5'2((34*(-%/*0A
:&..60($&#B*(/%=(7/'*#:*$':('4*(-%/*0A9*-"/9($&#B*("'("(47@4*#(7/'*#*:'(#"'*2((34*
47@4*#(7/'*#*:'(#"'*(#*9&$*:('4*(9*-"/9(5%#($%/:&-.'7%/("/9(7/B*:'-*/'K(:%("@@#*@"'*
9*-"/9(5"66:2((34&:K(5%#("(@7B*/(.#7$*(6*B*6K('4*(8&"/'7'0(%5(@%%9:("/9(:*#B7$*:
9*-"/9*9(9*$67/*:K(:%('4*("@@#*@"'*A9*-"/9($&#B*(:475':('%('4*(6*5'2
I2
>5('4*(@%B*#/-*/'(C&0:(LI(C7667%/(%5(.%67$*($"#:K("@@#*@"'*(9*-"/9(-7@4'(7/$#*":*(C0
-%#*('4"/(LI(C7667%/(C*$"&:*(%5('4*(-&6'7.67*#(*55*$'(%/("@@#*@"'*(9*-"/92((J@@#*@"'*
9*-"/9(-7@4'(7/$#*":*(C0(6*::('4"/(LI(C7667%/(C*$"&:*(%5('4*($#%=97/@A%&'(*55*$'(%/
"@@#*@"'*(9*-"/92
M2
>5(.*::7-7:-(:=**.:('4*($%&/'#0K(4%&:*4%69:(#*9&$*($%/:&-.'7%/(:.*/97/@("/9(57#-:
#*9&$*(7/B*:'-*/'K(:%("@@#*@"'*(9*-"/9(5"66:2((>5('4*(N*9(="/':('%(:'"C767O*("@@#*@"'*
9*-"/9K(7'(-&:'(7/$#*":*('4*(-%/*0(:&..60K(#*9&$7/@('4*(7/'*#*:'(#"'*K(=47$4(=766
7/9&$*(4%&:*4%69:('%(:"B*(6*::("/9(:.*/9(-%#*("/9(=766(*/$%&#"@*(57#-:('%(7/B*:'(-%#*K
C%'4(%5(=47$4(=766(7/$#*":*("@@#*@"'*(9*-"/92((>5('4*(N*9(9%*:/<'(7/$#*":*('4*(-%/*0
:&..60K(,%/@#*::($%&69(7/$#*":*(@%B*#/-*/'(.&#$4":*:(%#(#*9&$*('"?*:('%(7/$#*":*
"@@#*@"'*(9*-"/92
P2
Q%B*#/-*/'(.%67$7*:('4"'("$'(":("&'%-"'7$(:'"C767O*#:(7/$6&9*('4*('"?(:0:'*-("/9
@%B*#/-*/'(:.*/97/@('4#%&@4('4*(&/*-.6%0-*/'AC*/*57'(:0:'*-2((34*('"?(:0:'*-("$':
":("/("&'%-"'7$(:'"C767O*#(C*$"&:*(=4*/(7/$%-*:("#*(47@4(.*%.6*(."0(-%#*(7/('"?*:K(:%
'4*0($"/<'(:.*/9(":(-&$42((R4*/(7/$%-*:("#*(6%=K(:%("#*('"?*:G('4&:(.*%.6*($"/(:.*/9
-%#*2((34*(#*:&6'(7:('4"'(:.*/97/@(7:(:'"C767O*9(:%-*=4"'2((Q%B*#/-*/'(:.*/97/@
'4#%&@4('4*(&/*-.6%0-*/'AC*/*57'(:0:'*-("$':(":("/("&'%-"'7$(:'"C767O*#(C*$"&:*(7/
#*$*::7%/:('4*(@%B*#/-*/'('#"/:5*#:(-%/*0('%('4*(&/*-.6%0*9(:%('4*7#(7/$%-*:(9%/<'
5"66(":(-&$4("/9('4&:('4*7#(:.*/97/@(=%/<'(5"66(":(-&$42
!"#$%&#'()#"$*(+(,%-."/0
32/20-1
S2
,4"/@*:(7/(-%/*'"#0(.%67$0(4"B*(9755*#*/'(*55*$':(%B*#(9755*#*/'('7-*(4%#7O%/:(C*$"&:*
7/('4*(:4%#'(#&/('4*(.#7$*(6*B*6(7:(57?*9K(C&'(7/('4*(6%/@(#&/('4*(.#7$*(6*B*6(B"#7*:
.#%.%#'7%/"660(=7'4('4*(-%/*0(:&..602((34&:K(7/('4*(:4%#'(#&/K(-%/*'"#0(.%67$0(4":
*55*$':(%/(#*"6(B"#7"C6*:(:7/$*(.#7$*:(9%/<'($4"/@*K(C&'(7/('4*(6%/@(#&/K(-%/*'"#0(.%67$0
$"/<'("55*$'(#*"6(B"#7"C6*:K(%/60('4*(.#7$*(6*B*62
:'3C0&>9(#.6(;$$082#%83.9+((;.9B&'9
"2
R4*/("(="B*(%5(%.'7-7:-(C%%:':(C&:7/*::(7/B*:'-*/'K(-%/*0(9*-"/9(7/$#*":*:
5#%-(TU ('%(TU (7/(N7@&#*(IHA12((34*(7/$#*":*(7/(-%/*0(9*-"/9(7/$#*":*:('4*
7/'*#*:'(#"'*2
Interest Rate
Money supply
r2
r1
MD2
MD1
Quantity of Money
C2
R4*/('4*(N*9*#"6(V*:*#B*(#*9&$*:(#*:*#B*(#*8&7#*-*/':K('4*(-%/*0(:&..60
7/$#*":*:K(:%('4*(-%/*0A:&..60($&#B*(:475':('%('4*(#7@4'(5#%-(TW ('%(TW K(":
:4%=/(7/(N7@&#*(IHAH2((34*(#*:&6'(7:("(9*$67/*(7/('4*(7/'*#*:'(#"'*2
MS1 MS2
Interest Rate
12
r1
r2
Money demand
Quantity of Money
!"#$%&#'()#"$*(+(,%-."/0
32/20-2
$2
R4*/("/(7/$#*":*(7/(%76(.#7$*:(:475':('4*(:4%#'A#&/("@@#*@"'*A:&..60($&#B*
&.="#9K('4*(7/$#*":*9(.#7$*(6*B*6(7/$#*":*:(-%/*0(9*-"/92((34*(-%/*0A9*-"/9
$&#B*(:475':('%('4*(#7@4'(5#%-(TU ('%(TU K(":(:4%=/(7/(N7@&#*(IHAI2((34*(#*:&6'
7:("(#7:*(7/('4*(7/'*#*:'(#"'*2
Interest Rate
Money supply
r2
r1
MD2
MD1
Quantity of Money
92
R4*/(4%&:*4%69:(9*$79*('%(4%69(-%#*(-%/*0('%(&:*(5%#(4%679"0(:4%..7/@K('4*
-%/*0A9*-"/9($&#B*(:475':('%('4*(#7@4'(5#%-(TU ('%(TU K(":(:4%=/(7/(N7@&#*(
IHAM2((34*(#*:&6'(7:("(#7:*(7/('4*(7/'*#*:'(#"'*2
Interest Rate
Money supply
r2
r1
MD2
MD1
Quantity of Money
H2
"2
R4*/(-%#*(J3T:("#*("B"76"C6*K(:%('4"'(.*%.6*<:(-%/*0(9*-"/9(7:(#*9&$*9K('4*
-%/*0A9*-"/9($&#B*(:475':('%('4*(6*5'(5#%-(TU ('%(TU K(":(:4%=/(7/(N7@&#*
IHAP2((>5('4*(N*9(9%*:(/%'($4"/@*('4*(-%/*0(:&..60K(=47$4(7:("'(TW K('4*
7/'*#*:'(#"'*(=766(9*$67/*(5#%-(# ('%(# 2((34*(9*$67/*(7/('4*(7/'*#*:'(#"'*(:475':('4*
"@@#*@"'*(9*-"/9($&#B*('%('4*(#7@4'K(":($%/:&-.'7%/("/9(7/B*:'-*/'(7/$#*":*2
!"#$%&#'()#"$*(+(,%-."/0
32/20-3
Interest Rate
MS2
MS1
r1
r2
MD1
MD2
Quantity of Money
C2
>5('4*(N*9(="/':('%(:'"C767O*("@@#*@"'*(9*-"/9K(7'(:4%&69(#*9&$*('4*(-%/*0
:&..60('%(TW K(:%('4*(7/'*#*:'(#"'*(=766(#*-"7/("'(# ("/9("@@#*@"'*(9*-"/9(=%/<'
$4"/@*2
I2
J('"?($&'('4"'(7:(.*#-"/*/'(=766(4"B*("(C7@@*#(7-."$'(%/($%/:&-*#(:.*/97/@("/9
"@@#*@"'*(9*-"/92((>5('4*('"?($&'(7:(.*#-"/*/'K($%/:&-*#:(=766(B7*=(7'(":("997/@
:&C:'"/'7"660('%('4*7#(57/"/$7"6(#*:%&#$*:K("/9('4*0(=766(7/$#*":*('4*7#(:.*/97/@
:&C:'"/'7"6602((>5('4*('"?($&'(7:('*-.%#"#0K($%/:&-*#:(=766(B7*=(7'(":("997/@(X&:'("(67''6*
'%('4*7#(57/"/$7"6(#*:%&#$*:K(:%('4*0(=%/<'(7/$#*":*(:.*/97/@(":(-&$42
M2
34*(9*$67/*(7/('4*(Y2W2(7/'*#*:'(#"'*(7/(1ZZ1(9%*:/<'(/*$*::"#760(7-.60('4"'(-%/*'"#0
.%67$0(=":(*?."/:7%/"#02((W7/$*('4*(Y/7'*9(W'"'*:(=":(7/("(#*$*::7%/K(-%/*0(9*-"/9
9*$67/*92((34*(9*$67/*(7/(-%/*0(9*-"/9($%&69(4"B*("$$%&/'*9(5%#('4*(9*$67/*(7/('4*
7/'*#*:'(#"'*K(":(:4%=/(7/(N7@&#*(IHAS2
Interest Rate
Money supply
r1
r2
MD1
MD2
Quantity of Money
!"#$%&#'()#"$*(+(,%-."/0
32/20-4
P2
"2
[*@7:6"'7%/("66%=7/@(C"/\:('%(."0(7/'*#*:'(%/($4*$\7/@(9*.%:7':(7/$#*":*:('4*
#*'&#/('%(-%/*0(#*6"'7B*('%(%'4*#(57/"/$7"6("::*':K('4&:(7/$#*":7/@(-%/*0
9*-"/92
C2
>5('4*(-%/*0(:&..60(#*-"7/*9($%/:'"/'(E"'(TW FK('4*(7/$#*":*(7/('4*(9*-"/9(5%#
-%/*0(=%&69(4"B*(#"7:*9('4*(7/'*#*:'(#"'*K(":(:4%=/(7/(N7@&#*(IHA]2((34*(#7:*(7/
'4*(7/'*#*:'(#"'*(=%&69(4"B*(#*9&$*9($%/:&-.'7%/("/9(7/B*:'-*/'K('4&:(#*9&$7/@
"@@#*@"'*(9*-"/9("/9(%&'.&'2
Interest Rate
MS1
MS2
r2
r1
MD2
MD1
Quantity of Money
$2
3%(-"7/'"7/("($%/:'"/'(7/'*#*:'(#"'*K('4*(N*9(=%&69(/**9('%(7/$#*":*('4*(-%/*0
:&..60(5#%-(TW ('%(TW 2((34*/("@@#*@"'*(9*-"/9("/9(%&'.&'(=%&69(C*
&/"55*$'*92
S2
34*(9*-"/9(5%#(/*'(*?.%#':(7:(:'7-&6"'*9(C0(*?."/:7%/"#0(-%/*'"#0(.%67$0('4#%&@4('4*
T&/9*66AN6*-7/@(*?$4"/@*A#"'*(*55*$'K(97:$&::*9(7/($4".'*#(I12((34*(9*$67/*(7/('4*
7/'*#*:'(#"'*(7/$#*":*:(/*'(5%#*7@/(7/B*:'-*/'K('4&:(7/$#*":7/@(/*'(*?.%#':2
]2
"2
>5('4*#*<:(/%($#%=97/@(%&'K('4*/('4*(-&6'7.67*#(*8&"6:(1Ê1AT_,F2((W7/$*('4*
-&6'7.67*#(7:(IK('4*/(T_,(`(HÎ2
C2
>5('4*#*<:($#%=97/@(%&'K('4*/('4*(T_,(=%&69(C*(6"#@*#('4"/(HÎ2((J/(T_,
'4"'<:(6"#@*#('4"/(HÎ(=%&69(6*"9('%("(6"#@*#(-&6'7.67*#('4"/(IK(=47$4(7:('4*/
#*9&$*9(9%=/('%(I(C0('4*($#%=97/@A%&'(*55*$'2
"2
34*(7/7'7"6(*55*$'(%5('4*('"?(#*9&$'7%/(%5(LHb(C7667%/(7:('%(7/$#*":*("@@#*@"'*
9*-"/9(C0(LHb(C7667%/(?(I^M(E'4*(T_,F(`(L1P(C7667%/2((34*($&'(7/('"?*:
7/$#*":*:($%/:&-.'7%/(:.*/97/@(9*.*/97/@(%/('4*(T_,2
a2
!"#$%&#'()#"$*(+(,%-."/0
32/20-5
C2
J997'7%/"6(*55*$':(5%66%=('47:(7/7'7"6(*55*$'(":('4*("99*9(7/$%-*:(@*'(:.*/'2((34*
:*$%/9(#%&/9(6*"9:('%(7/$#*":*9($%/:&-.'7%/(:.*/97/@(%5(L1P(C7667%/(?(I^M(`
L112HP(C7667%/2((34*('47#9(#%&/9(@7B*:("/(7/$#*":*(7/($%/:&-.'7%/(%5(L112HP
C7667%/(?(I^M(`(La2MM(C7667%/2((34*(*55*$':($%/'7/&*(7/9*57/7'*602((J997/@('4*"66(&.(@7B*:("('%'"6(*55*$'('4"'(9*.*/9:(%/('4*(-&6'7.67*#2((R7'4("/(T_,(%5(I^MK
'4*(-&6'7.67*#(7:(1Ê1AI^MF(`(M2((W%('4*('%'"6(*55*$'(7:(L1P(C7667%/(?(M(`(LSb
C7667%/2
$2
Q%B*#/-*/'(.&#$4":*:(4"B*("/(7/7'7"6(*55*$'(%5('4*(5&66(LHb(C7667%/K(:7/$*('4*0
7/$#*":*("@@#*@"'*(9*-"/9(97#*$'60(C0('4"'("-%&/'2((34*('%'"6(*55*$'(%5("/
7/$#*":*(7/(@%B*#/-*/'(.&#$4":*:(7:('4&:(LHb(C7667%/(?(M(`(Lab(C7667%/2((W%
@%B*#/-*/'(.&#$4":*:(6*"9('%("(C7@@*#(*55*$'(%/(%&'.&'('4"/("('"?($&'(9%*:2
Z2
>5($%/:&-*#:(C*$%-*(%.'7-7:'7$("C%&'('4*7#(5&'&#*(7/$%-*:("/9(.&#$4":*("/("997'7%/"6
LIb(C7667%/(%5("997'7%/"6(@%%9:("/9(:*#B7$*:K('4*#*(=766(C*("(c-&6'7.67*9c(*55*$'(%/('%'"6
%&'.&'2((!%=*B*#K(75(5&'&#*(7/$%-*(9%*:/<'(#7:*(":(-&$4(":(.*%.6*(*?.*$'*9K('4*0(=%/<'
7/$#*":*(:.*/97/@("/0(5&#'4*#K(:%('4*#*(-"0(/%'(C*(":(6"#@*("(-&6'7.67*#2
1b2
>5(@%B*#/-*/'(:.*/97/@(7/$#*":*:K("@@#*@"'*(9*-"/9(#7:*:K(:%(-%/*0(9*-"/9(#7:*:2(
34*(7/$#*":*(7/(-%/*0(9*-"/9(6*"9:('%("(#7:*(7/('4*(7/'*#*:'(#"'*("/9('4&:("(9*$67/*(7/
"@@#*@"'*(9*-"/9(75('4*(N*9(9%*:/<'(#*:.%/92(()&'(75('4*(N*9(-"7/'"7/:("(57?*9(7/'*#*:'
#"'*K(7'(=766(7/$#*":*(-%/*0(:&..60K(:%("@@#*@"'*(9*-"/9(=%/<'(9*$67/*2((34&:('4*
*55*$'(%/("@@#*@"'*(9*-"/9(5#%-("/(7/$#*":*(7/(@%B*#/-*/'(:.*/97/@(=766(C*(6"#@*#(75
'4*(N*9(-"7/'"7/:("(57?*9(7/'*#*:'(#"'*2
112
"2
d?."/:7%/"#0(57:$"6(.%67$0(7:(-%#*(67\*60('%(6*"9('%("(:4%#'A#&/(7/$#*":*(7/
7/B*:'-*/'(75('4*(7/B*:'-*/'("$$*6*#"'%#(7:(6"#@*2((J(6"#@*(7/B*:'-*/'("$$*6*#"'%#
-*"/:('4"'('4*(7/$#*":*(7/(%&'.&'($"&:*9(C0(*?."/:7%/"#0(57:$"6(.%67$0(=766
7/9&$*("(6"#@*(7/$#*":*(7/(7/B*:'-*/'2((R7'4%&'("(6"#@*("$$*6*#"'%#K(7/B*:'-*/'
-7@4'(9*$67/*(C*$"&:*('4*(7/$#*":*(7/("@@#*@"'*(9*-"/9(=766(#"7:*('4*(7/'*#*:'
#"'*2
C2
d?."/:7%/"#0(57:$"6(.%67$0(7:(-%#*(67\*60('%(6*"9('%("(:4%#'A#&/(7/$#*":*(7/
7/B*:'-*/'(75('4*(7/'*#*:'(:*/:7'7B7'0(%5(7/B*:'-*/'(7:(:-"662((W7/$*(57:$"6(.%67$0
7/$#*":*:("@@#*@"'*(9*-"/9K('4&:(7/$#*":7/@(-%/*0(9*-"/9("/9('4*(7/'*#*:'
#"'*K('4*(@#*"'*#('4*(:*/:7'7B7'0(%5(7/B*:'-*/'('%('4*(7/'*#*:'(#"'*('4*(@#*"'*#('4*
9*$67/*(7/(7/B*:'-*/'(=766(C*K(=47$4(=766(%55:*'('4*(.%:7'7B*("$$*6*#"'%#(*55*$'2
"2
J/(7/$#*":*(7/(@%B*#/-*/'(:.*/97/@(=%&69(:475'('4*("@@#*@"'*(9*-"/9($&#B*('%
'4*(#7@4'K(7/$#*":7/@(%&'.&'2((34*(#7:*(7/(%&'.&'(=%&69(#"7:*($%/:&-.'7%/
:.*/97/@K(:7/$*(.*%.6*(=%&69(4"B*(47@4*#(7/$%-*:K("/9(#"7:*(7/B*:'-*/'
:.*/97/@('4#%&@4('4*("$$*6*#"'%#2(()&'(-%/*0(9*-"/9(=%&69("6:%(7/$#*":*K
1H2
!"#$%&#'()#"$*(+(,%-."/0
32/20-6
#"7:7/@('4*(7/'*#*:'(#"'*2((347:(=%&69('*/9('%(#*9&$*($%/:&-.'7%/K(":(.*%.6*
=%&69(:"B*(-%#*K("/9(#*9&$*(7/B*:'-*/'K(:7/$*('4*($%:'(%5(7/B*:'7/@(=%&69(C*
47@4*#2((eB*#"66K('4*($4"/@*:(7/(C%'4($%/:&-.'7%/("/9(7/B*:'-*/'("#*
"-C7@&%&:2
1I2
1M2
C2
J(#*9&$'7%/(7/('"?*:(=%&69(97#*$'60(7/$#*":*($%/:&-.'7%/(:.*/97/@K(:7/$*(.*%.6*
=%&69(4"B*(47@4*#("5'*#A'"?(7/$%-*:2((J6:%K(:7/$*('4*(#*9&$'7%/(7/('"?*:
7/$#*":*:($%/:&-.'7%/(:.*/97/@K("@@#*@"'*(9*-"/9(7/$#*":*:K(:%('%'"6(%&'.&'
7/$#*":*:2((34*(#7:*(7/(%&'.&'(=%&69(#"7:*($%/:&-.'7%/(:.*/97/@(5&#'4*#K(:7/$*
.*%.6*(=%&69(4"B*(47@4*#(7/$%-*:K("/9(#"7:*(7/B*:'-*/'(:.*/97/@('4#%&@4('4*
"$$*6*#"'%#2(()&'(-%/*0(9*-"/9(=%&69("6:%(7/$#*":*K(#"7:7/@('4*(7/'*#*:'(#"'*2(
347:(=%&69('*/9('%(#*9&$*($%/:&-.'7%/K(":(.*%.6*(=%&69(:"B*(-%#*K("/9(#*9&$*
7/B*:'-*/'K(:7/$*('4*($%:'(%5(7/B*:'7/@(=%&69(C*(47@4*#2((eB*#"66K($%/:&-.'7%/
-&:'(7/$#*":*(E%'4*#=7:*("@@#*@"'*(9*-"/9(=%&69/<'(4"B*(7/$#*":*9("'("66F
=476*('4*($4"/@*(7/(7/B*:'-*/'(7:("-C7@&%&:2
$2
J/(*?."/:7%/(7/('4*(-%/*0(:&..60(#*9&$*:('4*(7/'*#*:'(#"'*K('4&:(7/$#*":7/@
"@@#*@"'*(9*-"/9("/9(%&'.&'2((34*(#7:*(7/(%&'.&'(=%&69(#"7:*($%/:&-.'7%/
:.*/97/@K(:7/$*(.*%.6*(=%&69(4"B*(47@4*#(7/$%-*:K("/9(#"7:*(7/B*:'-*/'
:.*/97/@('4#%&@4('4*("$$*6*#"'%#2((34*(6%=*#(7/'*#*:'(#"'*(=%&69(7/$#*":*
$%/:&-.'7%/K(":(.*%.6*(=%&69(:"B*(6*::K("/9(7/$#*":*(7/B*:'-*/'K(:7/$*('4*($%:'
%5(7/B*:'7/@(=%&69(C*(6%=*#2((eB*#"66K(C%'4($%/:&-.'7%/("/9(7/B*:'-*/'(=%&69
7/$#*":*2
"2
3"?(#*B*/&*(9*$67/*:(=4*/('4*(*$%/%-0(@%*:(7/'%("(#*$*::7%/(C*$"&:*('"?*:("#*
$6%:*60(#*6"'*9('%(*$%/%-7$("$'7B7'02((>/("(#*$*::7%/K(.*%.6*<:(7/$%-*:("/9
="@*:(5"66K(":(9%(57#-:<(.#%57':K(:%('"?*:(%/("66('4*:*('47/@:(9*$67/*2
C2
Q%B*#/-*/'(:.*/97/@(#7:*:(=4*/('4*(*$%/%-0(@%*:(7/'%("(#*$*::7%/(C*$"&:*
-%#*(.*%.6*(@*'(&/*-.6%0-*/'A7/:&#"/$*(C*/*57':K(=*65"#*(C*/*57':K("/9(%'4*#
5%#-:(%5(7/$%-*(:&..%#'2
$2
>5('4*(@%B*#/-*/'(=*#*('%(%.*#"'*(&/9*#("(:'#7$'(C"6"/$*9AC&9@*'(#&6*K(7'(=%&69
4"B*('%(#"7:*('"?(#"'*:(%#($&'(@%B*#/-*/'(:.*/97/@(7/("(#*$*::7%/2(()%'4(=%&69
#*9&$*("@@#*@"'*(9*-"/9K(-"\7/@('4*(#*$*::7%/(-%#*(:*B*#*2
J/(7/$#*":*(7/('4*(-%/*0(:&..60(#"7:*:("@@#*@"'*(9*-"/9K('4&:("55*$'7/@(#*"6(B"#7"C6*:
7/('4*(:4%#'(#&/2(()&'('4*(7/$#*":*(7/('4*(-%/*0(:&..60("55*$':(%/60(/%-7/"6(B"#7"C6*:(7/
'4*(6%/@(#&/2
"2
,%/:&-*#(*?.*/97'&#*:(=%&69(C*(:-"66*#(7/('4*(6%/@(#&/('4"/(7/('4*(:4%#'(#&/2(
>/('4*(:4%#'(#&/K('4*(7/$#*":*(7/(-%/*0(:&..60(=%&69(#*9&$*('4*(7/'*#*:'(#"'*K
7/$#*":7/@($%/:&-.'7%/(:.*/97/@2(()&'(7/('4*(6%/@(#&/K('4*#*(=%&69(C*(/%(*55*$'
%/($%/:&-*#(*?.*/97'&#*:2
!"#$%&#'()#"$*(+(,%-."/0
32/20-7
34*(.#7$*(6*B*6(=%&69(C*(6"#@*#(7/('4*(6%/@(#&/('4"/(7/('4*(:4%#'(#&/2((>/('4*
:4%#'(#&/K('4*(7/$#*":*(7/('4*(-%/*0(:&..60(=%&69(4"B*(/%(*55*$'(%/('4*(.#7$*
6*B*6K(:7/$*(7'<:(57?*92(()&'(7/('4*(6%/@(#&/K('4*(.#7$*(6*B*6(=%&69(#7:*2
$2
34*(7/'*#*:'(#"'*(=%&69(C*(47@4*#(7/('4*(6%/@(#&/('4"/(7/('4*(:4%#'(#&/2((>/('4*
:4%#'(#&/K('4*(7/$#*":*(7/('4*(-%/*0(:&..60(=%&69(#*9&$*('4*(7/'*#*:'(#"'*2(()&'
7/('4*(6%/@(#&/K('4*(7/'*#*:'(#"'*(=%&69(C*(&/"55*$'*92
92
J@@#*@"'*(%&'.&'(=%&69(C*(:-"66*#(7/('4*(6%/@(#&/('4"/(7/('4*(:4%#'(#&/2((>/('4*
:4%#'(#&/K('4*(7/$#*":*(7/(-%/*0(:&..60(=%&69(#*9&$*('4*(7/'*#*:'(#"'*K
7/$#*":7/@("@@#*@"'*(9*-"/9("/9(%&'.&'2(()&'(7/('4*(6%/@(#&/K('4*(7/$#*":*(7/('4*
-%/*0(:&..60(=%&69(4"B*(/%(*55*$'(%/(%&'.&'2
"2
>5('4*(N*9*#"6(V*:*#B*(*?."/9:('4*(-%/*0(:&..60K(":(:4%=/(7/(N7@&#*(IHAaK('4*
7/'*#*:'(#"'*(9*$67/*:(7/('4*(:4%#'(#&/2
C2
>/('4*(6%/@(#&/K('4*#*(=766(C*(/%(*55*$'(%/('4*(7/'*#*:'(#"'*2((34*(.#7$*(6*B*6(=766
#7:*K(7/$#*":7/@(-%/*0(9*-"/92((W7/$*('4*(7/'*#*:'(#"'*(7:("(#*"6(B"#7"C6*K(7'($"/<'
C*("55*$'*9(7/('4*(6%/@(#&/(C*$"&:*(%5('4*($6"::7$"6(97$4%'%-02
$2
34*(:4%#'A#&/(*55*$'(9755*#:(5#%-('4*(6%/@A#&/(*55*$'(C*$"&:*(%5(:'7$\0(.#7$*:2((>/
'4*(:4%#'(#&/K(.#7$*:($"/<'("9X&:'('%(#*56*$'('4*($4"/@*(7/('4*(-%/*0(:&..602(()&'
7/('4*(6%/@(#&/('4*0(9%2
MS1 MS2
Interest Rate
1P2
C2
r1
r2
Money
demand
Quantity of Money
!"#$%&#'()#"$*(+(,%-."/0
32/20-8
!"#$%&'())*((+"&(,"-'%.'/0(+'#1&-22(3&%4&&0(5026#%7-0(#01(80&9$6-:9&0%
;/&<%7-0<(2-'(=&>7&4*((?0<4&'<
345&#*(6671(89%:8('9*(89%#'7#&/('#";*%<<(=*':**/(4/<>"'4%/("/;(&/*-.>%0-*/'2((?9*
3*;($"/(-%@*(<#%-(%/*(.%4/'(%/('948($&#@*('%("/%'9*#(=0($9"/54/5('9*(-%/*0(8&..>02(
A/(4/$#*"8*(4/('9*(-%/*0(8&..>0(#*;&$*8('9*(&/*-.>%0-*/'(#"'*("/;(4/$#*"8*8('9*
4/<>"'4%/(#"'*B(:94>*("(;*$#*"8*(4/('9*(-%/*0(8&..>0(4/$#*"8*8('9*(&/*-.>%0-*/'(#"'*
"/;(;*$#*"8*8('9*(4/<>"'4%/(#"'*2
Inflation Rate
12
Phillips curve
Unemployment Rate
C2
345&#*(667C(89%:8('9*(>%/57#&/('#";*%<<(=*':**/(4/<>"'4%/("/;(&/*-.>%0-*/'2((D/('9*
>%/5(#&/B('9*#*(48(/%('#";*%<<B("8('9*(*$%/%-0(-&8'(#*'&#/('%('9*(/"'&#">(#"'*(%<
&/*-.>%0-*/'(%/('9*(>%/57#&/(E94>>4.8($&#@*2((D/('9*(89%#'(#&/B('9*(*$%/%-0($"/(-%@*
">%/5("(89%#'7#&/(E94>>4.8($&#@*B(>4F*(GHE, (89%:/(4/('9*(<45&#*2(()&'(%@*#('4-*('9*
89%#'7#&/(E94>>4.8($&#@*(:4>>(894<'('%(#*'&#/('9*(*$%/%-0('%('9*(>%/57#&/(E94>>4.8($&#@*B
<%#(*I"-.>*(894<'4/5(<#%-(GHE, ('%(GHE, 2
!"#$%&#'()#"$*(+(,%-."/0
33/21-1
Inflation Rate
Long-run
Phillips curve
SRPC2
SRPC1
Unemployment Rate
62
?9*(/"'&#">(#"'*(%<(&/*-.>%0-*/'(-459'(;4<<*#("$#%88($%&/'#4*8(=*$"&8*(;4<<*#*/'
$%&/'#4*8(9"@*(;4<<*#4/5(;*5#**8(%<(&/4%/(.%:*#B(-4/4-&-7:"5*(>":8B($%>>*$'4@*7
="#5"4/4/5(>":8B(&/*-.>%0-*/'(4/8&#"/$*B(J%=7'#"4/4/5(.#%5#"-8B("/;(%'9*#(<"$'%#8('9"'
4/<>&*/$*(>"=%#7-"#F*'($%/;4'4%/82
K2
D<("(;#%&59'(;*8'#%08(<"#-($#%.8("/;(;#4@*8(&.('9*(.#4$*(%<(<%%;B('9*(89%#'7#&/
"55#*5"'*78&..>0($&#@*(894<'8(&.B("8(;%*8('9*(89%#'7#&/(E94>>4.8($&#@*B(=*$"&8*('9*($%8'8
%<(.#%;&$'4%/(9"@*(4/$#*"8*;2((?9*(9459*#(89%#'7#&/(E94>>4.8($&#@*(-*"/8('9*(4/<>"'4%/
#"'*(:4>>(=*(9459*#(<%#("/0(54@*/(&/*-.>%0-*/'(#"'*2
L2
M9*/('9*(3*;(;*$4;*8('%(#*;&$*(4/<>"'4%/B('9*(*$%/%-0(-%@*8(;%:/(">%/5('9*(89%#'7#&/
E94>>4.8($&#@*B("8(89%:/(4/(345&#*(66762(()*54//4/5("'(.%4/'(A(%/(89%#'7#&/(E94>>4.8
$&#@*(GHE, B('9*(*$%/%-0(-%@*8(;%:/('%(.%4/'()("8(4/<>"'4%/(;*$>4/*82((N/$*(.*%.>*O8
*I.*$'"'4%/8(";J&8'('%('9*(>%:*#(#"'*(%<(4/<>"'4%/B('9*(89%#'7#&/(E94>>4.8($&#@*(894<'8('%
GHE, B("/;('9*(*$%/%-0(-%@*8('%(.%4/'(,2((?9*(89%#'7#&/($%8'8(%<(;484/<>"'4%/B(:94$9
"#48*(=*$"&8*('9*(&/*-.>%0-*/'(#"'*(48('*-.%#"#4>0("=%@*(4'8(/"'&#">(#"'*B($%&>;(=*
#*;&$*;(4<('9*(3*;O8("$'4%/(:"8($#*;4=>*B(8%('9"'(*I.*$'"'4%/8(:%&>;(";J&8'(-%#*
#".4;>02
Inflation Rate
Long-run
Phillips curve
B
SRPC1
SRPC2
Unemployment Rate
!"#$%&#'()#"$*(+(,%-."/0
33/21-2
@'-A6&9<(#01(?$$67B#%7-0<*((?0<4&'<
12
345&#*(667K(89%:8(':%(;4<<*#*/'(89%#'7#&/(E94>>4.8($&#@*8(;*.4$'4/5('9*8*(<%&#(.%4/'82(
E%4/'8(!("/;("("#*(%/(GHE, (=*$"&8*(=%'9(9"@*(*I.*$'*;(4/<>"'4%/(%<(6(.*#$*/'2((E%4/'8
#("/;($("#*(%/(GHE, (=*$"&8*(=%'9(9"@*(*I.*$'*;(4/<>"'4%/(%<(L(.*#$*/'2
Inflation Rate
Long-run
Phillips curve
5%
3%
SRPC2
SRPC1
Unemployment Rate
"2
A(#48*(4/('9*(/"'&#">(#"'*(%<(&/*-.>%0-*/'(894<'8('9*(>%/57#&/(E94>>4.8($&#@*('%
'9*(#459'B("8(89%:/(4/(345&#*(667L2((?9*(*$%/%-0(48(4/4'4">>0(%/(PHE, ("/;
GHE, ("'("/(4/<>"'4%/(#"'*(%<(6(.*#$*/'B(:94$9(48(">8%('9*(*I.*$'*;(#"'*(%<
4/<>"'4%/2((?9*(4/$#*"8*(4/('9*(/"'&#">(#"'*(%<(&/*-.>%0-*/'(894<'8('9*(>%/57#&/
E94>>4.8($&#@*('%(PHE, ("/;('9*(89%#'7#&/(E94>>4.8($&#@*('%(GHE, B(:4'9('9*
*I.*$'*;(#"'*(%<(4/<>"'4%/(#*-"4/4/5(*Q&">('%(6(.*#$*/'2
LRPC1
Inflation Rate
C2
LRPC2
3%
SRPC2
SRPC1
Unemployment Rate
!"#$%&#'()#"$*(+(,%-."/0
33/21-3
=2
A(;*$>4/*(4/('9*(.#4$*(%<(4-.%#'*;(%4>(894<'8('9*(89%#'7#&/(E94>>4.8($&#@*(;%:/B
"8(89%:/(4/(345&#*(667RB(<#%-(GHE, ('%(GHE, 2((3%#("/0(54@*/(&/*-.>%0-*/'
#"'*B('9*(4/<>"'4%/(#"'*(48(>%:*#B(84/$*(%4>(48(8&$9("(845/4<4$"/'("8.*$'(%<
.#%;&$'4%/($%8'8(4/('9*(*$%/%-02
Inflation Rate
Long-run
Phillips curve
SRPC1
SRPC2
Unemployment Rate
A(#48*(4/(5%@*#/-*/'(8.*/;4/5(#*.#*8*/'8("/(4/$#*"8*(4/("55#*5"'*(;*-"/;B(8%(4'
-%@*8('9*(*$%/%-0(">%/5('9*(89%#'7#&/(E94>>4.8($&#@*B("8(89%:/(4/(345&#*(667S2(
?9*(*$%/%-0(-%@*8(<#%-(.%4/'(A('%(.%4/'()B(:4'9("(;*$>4/*(4/('9*
&/*-.>%0-*/'(#"'*("/;("/(4/$#*"8*(4/('9*(4/<>"'4%/(#"'*2
Long-run
Phillips curve
Inflation Rate
$2
B
A
Long-run
Phillips curve
Unemployment Rate
!"#$%&#'()#"$*(+(,%-."/0
33/21-4
;2
A(;*$>4/*(4/(*I.*$'*;(4/<>"'4%/($"&8*8('9*(89%#'7#&/(E94>>4.8($&#@*('%(894<'(;%:/B
"8(89%:/(4/(345&#*(667T2((?9*(>%:*#(#"'*(%<(*I.*$'*;(4/<>"'4%/(894<'8('9*(89%#'7
#&/(E94>>4.8($&#@*(<#%-(GHE, ('%(GHE, 2
Inflation Rate
Long-run
Phillips curve
SRPC1
SRPC2
Unemployment Rate
62
"2
345&#*(667U(89%:8(9%:("(#*;&$'4%/(4/($%/8&-*#(8.*/;4/5($"&8*8("(#*$*884%/(4/
=%'9("/("55#*5"'*78&..>0V"55#*5"'*7;*-"/;(;4"5#"-("/;("(E94>>4.87$&#@*
;4"5#"-2((D/(=%'9(;4"5#"-8B('9*(*$%/%-0(=*54/8("'(<&>>(*-.>%0-*/'("'(.%4/'(A2(
?9*(;*$>4/*(4/($%/8&-*#(8.*/;4/5(#*;&$*8("55#*5"'*(;*-"/;B(894<'4/5('9*
"55#*5"'*7;*-"/;($&#@*('%('9*(>*<'(<#%-(AW ('%(AW 2((?9*(*$%/%-0(4/4'4">>0
#*-"4/8(%/('9*(89%#'7#&/("55#*5"'*78&..>0($&#@*(GHAG B(8%('9*(/*:(*Q&4>4=#4&%$$&#8("'(.%4/'()2((?9*(-%@*-*/'(%<('9*("55#*5"'*7;*-"/;($&#@*(">%/5('9*
89%#'7#&/("55#*5"'*78&..>0($&#@*(>*";8('%("(-%@*-*/'(">%/5(89%#'7#&/(E94>>4.8
$&#@*(GHE, B(<#%-(.%4/'(A('%(.%4/'()2((?9*(>%:*#(.#4$*(>*@*>(4/('9*("55#*5"'*7
8&..>0V"55#*5"'*7;*-"/;(;4"5#"-($%##*8.%/;8('%('9*(>%:*#(4/<>"'4%/(#"'*(4/('9*
E94>>4.87$&#@*(;4"5#"-2((?9*(>%:*#(>*@*>(%<(%&'.&'(4/('9*("55#*5"'*78&..>0V
"55#*5"'*7;*-"/;(;4"5#"-($%##*8.%/;8('%('9*(9459*#(&/*-.>%0-*/'(#"'*(4/('9*
E94>>4.87$&#@*(;4"5#"-2
!"#$%&#'()#"$*(+(,%-."/0
33/21-5
Price Level
SRAS2
P1
P2
A
B
P3
AD1
Long-run
Phillips
curve
Inflation Rate
Long-run
aggregate
supply
SRAS1
2
3
SRPC1
AD2
Y2
=2
SRPC2
Y1
U1
Quantity of Output
Unemployment Rate
U2
D<(*I.*$'*;(4/<>"'4%/(48(&/$9"/5*;B('9*(#*$*884%/("/;(9459(&/*-.>%0-*/'(#"'*(*@*/'&">>0
$"&8*(:"5*8('%(;*$>4/*(4/('9*(*$%/%-02((A8('948(%$$&#8B('9*(.#4$*(%<(.#%;&$'4%/
;*$>4/*8B(894<'4/5('9*(89%#'7#&/("55#*5"'*78&..>0($&#@*(;%:/(<#%-(GHAG ('%(GHAG B
"/;(894<'4/5('9*(89%#'7#&/(E94>>4.8($&#@*(;%:/(<#%-(GHE, ('%(GHE, 2((D/(=%'9
;4"5#"-8B('9*(*$%/%-0(*@*/'&">>0(5*'8('%(.%4/'(,B(:94$9(48(="$F(%/('9*(>%/57#&/
"55#*5"'*78&..>0($&#@*("/;(>%/57#&/(E94>>4.8($&#@*2
D<(*I.*$'*;(4/<>"'4%/($9"/5*8B('9*(-%@*-*/'(%<('9*(*$%/%-0('%(GHAG ("/;
GHE, (9"..*/8(<"8'*#('9"/(4<('9*(*$%/%-0(";J&8'8('9#%&59("(;*$>4/*(4/(/%-4/">
:"5*82(()&'(4/(*4'9*#($"8*B('9*(*$%/%-0(*@*/'&">>0(5*'8('%(.%4/'(,(%/(=%'9
;4"5#"-82
"2
345&#*(6671X(89%:8('9*(*$%/%-0(4/(>%/57#&/(*Q&4>4=#4&-("'(.%4/'(!B(:94$9(48(%/
=%'9('9*(>%/57#&/("/;(89%#'7#&/(E94>>4.8($&#@*82
Long-run
Phillips curve
Inflation Rate
K2
a
b
Short-run
Phillips
curve
Unemployment Rate
!"#$%&#'()#"$*(+(,%-."/0
33/21-6
=2
A(:"@*(%<(=&84/*88(.*884-48-(#*;&$*8("55#*5"'*(;*-"/;B(-%@4/5('9*(*$%/%-0
'%(.%4/'(#(4/('9*(<45&#*2((?9*(&/*-.>%0-*/'(#"'*(#48*8("/;('9*(4/<>"'4%/(#"'*
;*$>4/*82((D<('9*(3*;(&/;*#'"F*8(*I."/84%/"#0(-%/*'"#0(.%>4$0B(4'($"/(4/$#*"8*
"55#*5"'*(;*-"/;B(%<<8*''4/5('9*(.*884-48-("/;(#*'&#/4/5('9*(*$%/%-0('%(.%4/'
!B(:4'9('9*(4/4'4">(4/<>"'4%/(#"'*("/;(&/*-.>%0-*/'(#"'*2
$2
345&#*(66711(89%:8('9*(*<<*$'8(%/('9*(*$%/%-0(4<('9*(.#4$*(%<(4-.%#'*;(%4>(#48*82(
?9*(9459*#(.#4$*(%<(4-.%#'*;(%4>(894<'8('9*(89%#'7#&/(E94>>4.8($&#@*(&.(<#%GHE, ('%(GHE, 2((?9*(*$%/%-0(-%@*8(<#%-(.%4/'(!('%(.%4/'($B(:4'9("(9459*#
4/<>"'4%/(#"'*("/;(9459*#(&/*-.>%0-*/'(#"'*2((Y%:(4<('9*(3*;(*/5"5*8(4/
*I."/84%/"#0(-%/*'"#0(.%>4$0B(4'($"/(#*'&#/('9*(*$%/%-0('%(4'8(%#454/">
&/*-.>%0-*/'(#"'*("'(.%4/'("B(=&'('9*(4/<>"'4%/(#"'*(:4>>(=*(9459*#2((D<('9*(3*;
*/5"5*8(4/($%/'#"$'4%/"#0(-%/*'"#0(.%>4$0B(4'($"/(#*'&#/('9*(*$%/%-0('%(4'8
%#454/">(4/<>"'4%/(#"'*("'(.%4/'(%B(=&'('9*(&/*-.>%0-*/'(#"'*(:4>>(=*(9459*#2((?948
84'&"'4%/(;4<<*#8(<#%-('9"'(4/(."#'(Z=[(=*$"&8*(4/(."#'(Z=[('9*(*$%/%-0(8'"0*;(%/
'9*(8"-*(89%#'7#&/(E94>>4.8($&#@*B(=&'(4/(."#'(Z$[('9*(*$%/%-0(-%@*;('%("(9459*#
89%#'7#&/(E94>>4.8($&#@*2
Inflation Rate
Long-run
Phillips curve
d
c
e
a
SRPC2
SRPC1
Unemployment Rate
L2
D<('9*(3*;("$'8(%/(4'8(=*>4*<('9"'('9*(/"'&#">(#"'*(%<(&/*-.>%0-*/'(48(R(.*#$*/'B(:9*/('9*
/"'&#">(#"'*(48(4/(<"$'(L2L(.*#$*/'B('9*(#*8&>'(:4>>(=*("(8.4#">4/5(;%:/(%<('9*(4/<>"'4%/
#"'*B("8(89%:/(4/(345&#*(6671C2((G'"#'4/5(<#%-("(.%4/'(%/('9*(>%/57#&/(E94>>4.8($&#@*B
:4'9("/(&/*-.>%0-*/'(#"'*(%<(L2L(.*#$*/'B('9*(3*;(:4>>('94/F('9"'('9*(*$%/%-0(48
%@*#9*"'4/5B(84/$*('9*(&/*-.>%0-*/'(#"'*(48(=*>%:(:9"'(4'('94/F8(48('9*(/"'&#">(#"'*2((G%
'9*(3*;(:4>>($%/'#"$'('9*(-%/*0(8&..>0B(-%@4/5('9*(*$%/%-0(">%/5('9*(89%#'7#&/
E94>>4.8($&#@*(GHE, 2((?9*(4/<>"'4%/(#"'*(:4>>(;*$>4/*("/;('9*(&/*-.>%0-*/'(#"'*(:4>>
#48*('%(R(.*#$*/'2((A8('9*(4/<>"'4%/(#"'*(;*$>4/*8B(.*%.>*O8(*I.*$'"'4%/8(%<(4/<>"'4%/(:4>>
!"#$%&#'()#"$*(+(,%-."/0
33/21-7
*@*/'&">>0(;*$>4/*B("/;('9*(89%#'7#&/(E94>>4.8($&#@*(:4>>(894<'('%('9*(>*<'('%(GHE, 2((?948
.#%$*88(:4>>($%/'4/&*B("/;('9*(4/<>"'4%/(#"'*(:4>>(8.4#">(;%:/:"#;82
Inflation Rate
Long-run
Phillips curve
SRPC1
SRPC2
SRPC3
5.5% 6%
Unemployment Rate
R2
S2
"2
D<(:"5*($%/'#"$'8(9"@*(89%#'(;&#"'4%/8B("(#*$*884%/(4/;&$*;(=0($%/'#"$'4%/"#0
-%/*'"#0(.%>4$0(:4>>(=*(>*88(8*@*#*B(84/$*(:"5*($%/'#"$'8($"/(=*(";J&8'*;(-%#*
#".4;>0('%(#*<>*$'('9*(>%:*#(4/<>"'4%/(#"'*2((?948(:4>>(">>%:("(-%#*(#".4;
-%@*-*/'(%<('9*(89%#'7#&/("55#*5"'*78&..>0($&#@*("/;(89%#'7#&/(E94>>4.8($&#@*
'%(#*8'%#*('9*(*$%/%-0('%(>%/57#&/(*Q&4>4=#4&-2
=2
D<('9*#*(48(>4''>*($%/<4;*/$*(4/('9*(3*;O8(;*'*#-4/"'4%/('%(#*;&$*(4/<>"'4%/B("
#*$*884%/(4/;&$*;(=0($%/'#"$'4%/"#0(-%/*'"#0(.%>4$0(:4>>(=*(-%#*(8*@*#*2((D'
:4>>('"F*(>%/5*#(<%#(.*%.>*O8(4/<>"'4%/(*I.*$'"'4%/8('%(";J&8'(;%:/:"#;8B('9*(>*88
$%/<4;*/$*('9*0(9"@*(4/('9*(3*;O8(:4>>4/5/*88('%(=*"#('9*($%8'8(%<(#*;&$4/5
4/<>"'4%/2
$2
D<(*I.*$'"'4%/8(%<(4/<>"'4%/(";J&8'(Q&4$F>0('%("$'&">(4/<>"'4%/B("(#*$*884%/(4/;&$*;
=0($%/'#"$'4%/"#0(-%/*'"#0(.%>4$0(:4>>(=*(>*88(8*@*#*2((D/('948($"8*B(.*%.>*O8
*I.*$'"'4%/8(";J&8'(Q&4$F>0B(8%('9*(89%#'7#&/(E94>>4.8($&#@*(894<'8(Q&4$F>0('%
#*8'%#*('9*(*$%/%-0('%(>%/57#&/(*Q&4>4=#4&-("'('9*(/"'&#">(#"'*(%<
&/*-.>%0-*/'2
\$%/%-48'8(:9%(=*>4*@*('9*(89%#'7#&/(E94>>4.8($&#@*(48(#*>"'4@*>0(8'**.("/;(894<'8
Q&4$F>0(4/(#*8.%/8*('%($9"/5*8(4/('9*(*$%/%-0(:%&>;(=*(-%#*(>4F*>0('%(<"@%#(&84/5
$%/'#"$'4%/"#0(.%>4$0('%(#*;&$*(4/<>"'4%/('9"/(*$%/%-48'8(:4'9('9*(%..%84'*(@4*:82((D<
'9*(89%#'7#&/(E94>>4.8($&#@*(48(#*>"'4@*>0(8'**.B('9*/('9*(&/*-.>%0-*/'(#"'*(;%*8/O'(#48*
-&$9(=*$"&8*(%<($%/'#"$'4%/"#0(.%>4$02((A/;(4<('9*(89%#'7#&/(E94>>4.8($&#@*(894<'8
Q&4$F>0(4/(#*8.%/8*('%($9"/5*8(4/('9*(*$%/%-0B('9*/('9*(*$%/%-0(:%/O'(=*(%<<('9*(>%/57
!"#$%&#'()#"$*(+(,%-."/0
33/21-8
#&/(E94>>4.8($&#@*(<%#(>%/5(4/(#*8.%/8*('%($%/'#"$'4%/"#0(-%/*'"#0(.%>4$02((?9&8B('9*
$%8'8(%<(;484/<>"'4%/(:4>>(=*(@*#0(8-">>2
T2
M4'9("(8"$#4<4$*(#"'4%(%<(LB("(#*;&$'4%/(%<(4/<>"'4%/(=0(C(.*#$*/'"5*(.%4/'8(#*Q&4#*8("
>%88(%<(%&'.&'(%<(L(I(C(](1X(.*#$*/'"5*(.%4/'82((G4/$*('948(:4>>('"F*(.>"$*(%@*#(L(0*"#8B
%&'.&'(:4>>(9"@*('%("@*#"5*(1XVL(](C(.*#$*/'"5*(.%4/'8(.*#(0*"#(=*>%:(4'8('#*/;(>*@*>2(
G4/$*('9*(&/*-.>%0-*/'(#"'*(:4>>(=*(1VC(.*#$*/'"5*(.%4/'(9459*#(<%#(*"$9(.*#$*/'"5*
.%4/'('9"'(%&'.&'(48(=*>%:(4'8('#*/;(>*@*>B('9*(&/*-.>%0-*/'(#"'*(:4>>(=*(1VC(I(C(](1
.*#$*/'"5*(.%4/'(9459*#('9"/(4'8(/"'&#">(#"'*(%<(R(.*#$*/'B(8%('9*(&/*-.>%0-*/'(#"'*(:4>>
9"@*('%("@*#"5*(S(.*#$*/'(<%#(L(0*"#82
U2
D<('9*(3*;("//%&/$*8("(;484/<>"'4%/B(=&'(/%-4/">(:"5*8(9"@*(=**/(8*'(4/('9#**70*"#
$%/'#"$'8B('9*/('9*(>%:*#(#"'*(%<(4/<>"'4%/(:4>>(-*"/(#*">(:"5*8("#*('%%(9459(&/'4>('9*
$%/'#"$'8($"/(=*(#*/*5%'4"'*;(4/('9#**(0*"#82((A8("(#*8&>'B(<4#-8(:%/O'(94#*("8(-&$9
>"=%#("/;('9*#*(:4>>(=*(&/*-.>%0-*/'2((G%('9*(;484/<>"'4%/(:%&>;(=*($%8'>02((?%(#*;&$*
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!"#$%&#'()#"$*(+(,%-."/0
34/22-2
Long-run
aggregate supply
SRAS1
SRAS2
Price Level
A
B
C
AD1
AD2
Y2 Y1
Quantity of Output
C2
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Price Level
Interest Rate
Money
supply
r2
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MD2
Short-run
aggregate supply
P1
P2
MD1
Quantity of Money
AD1
AD2
Y2 Y 1
Quantity of Output
!"#$%&#'()#"$*(+(,%-."/0
34/22-3
;2
J9('4*(K*:@7(#&5*(#*7.%/:*:('%('4*(&/*-.5%0-*/'(#"'*=('4*/('4*(*99*$'7(8/(."#'(!
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$&#<*(7489'7(9#%-(?Z ('%(?Z 2((34*(#*7&5'(87("(#87*(8/(%&'.&'(9#%-(\ ('%(\ 2((
Long-run
aggregate supply
Price Level
Interest Rate
MS1 MS2
r2
r3
r1
Short-run
aggregate supply
MD2
MD1
Quantity of Money
M2
AD1
AD3
AD2
Y2 Y3 Y1
Quantity of Output
$2
!"<8/6("/(*5*-*/'(%9(9**:;"$>(8/('4*(K*:@7(#&5*=("7(8/(."#'("=(4*5.7('%(7'";858A*
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34/22-4
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34/22-5
Inflation Rate
Long-run
Phillips curve
C
A
B
SRPC3
SRPC1
SRPC2
Unemployment Rate
T2
"2
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34/22-7

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