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Economics U$A: 21st Century Edition

Supply and Demand (Microeconomics)

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A two-year drought in California in the 1970s motivated areas such as Marin County to conserve by reducing their water consumption by as much as 66 percent. Following the Arab oil embargoes of 1973, the Nixon administration latched onto the world price of “new” oil, encouraging domestic oil suppliers to drill again. Jordache designer jeans used creative advertising to create a demand for blue jeans. These stories illuminate factors that determine the quantity of goods demanded by consumers and the factors that determine the quantity of goods supplied.

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Unit Overview


To help viewers understand the factors that determine the quantity of goods demanded by consumers and the factors that determine the quantity of goods supplied.


  1. The amount of a good that consumers purchase depends on how much they value it in relation to the selling price.
    • The more units of a good an individual (or society in general) has consumed in a given period, the less he or she values an additional unit (diminishing marginal utility).
    • If the value the consumer places on an additional unit of a good is less than the selling price, he will not purchase it.
  2. At a given price, consumers will generally demand more of a good if their income rises, if the price of a substitute good rises, if the price of a complementary good falls, or if consumers’ tastes change in favor of the good in question. All these factors will shift the demand curve.
  3. As producers expand production they may initially experience economies of scale, but as they continue to expand production the cost of producing each additional unit will increase.
  4. A firm will not maximize its profits if it expands production past the point at which the additional cost per unit is greater than the revenue earned by selling that unit (the marginal revenue = marginal cost criterion for profit maximization).
    • If the selling price increases, firms will produce more units of output because they will then be able to make a profit on these units.
    • If the costs of production increase, firms will produce fewer units.

Meet the Series Experts

James Schlesinger

Secretary of Defense under Presidents Richard Nixon and Gerald Ford, and the first U.S. Secretary of Energy, under President Jimmy Carter. While Secretary of Defense, he opposed amnesty for draft resisters and pressed for the development of more sophisticated nuclear weapon systems. Additionally, his support for the A-10 and the lightweight fighter program (later the F-16) helped ensure that they were carried to completion. Between 1955 and 1963, he taught economics at the University of Virginia and in 1960 published The Political Economy of National Security. He also worked at the Rand Corporation as Director of Strategic Studies. Dr. Schlesinger received his B.A., M.A., and Ph.D. in Economics at Harvard University.

Brenda Gall

Financial Analyst and First Vice President at Merrill Lynch and Company, specializing in the textiles and the apparel industry. In 1996, she tied for the number one analyst spot in the Textile and Apparel Industry. She has been interviewed and quoted by many fashion and New York magazines regarding her opinions on the fashion trade.


  • diminishing returns
    The decrease in the yield of a production process as one input of that production process increases, when all other variables of that production remain constant.
  • marginal cost
    The addition to total cost resulting from the addition of the last unit of output.
  • marginal revenue
    The addition to total revenue that results from the addition of one unit to the quantity sold.
  • marginal utility
    The additional satisfaction derived from consuming an additional unit of a commodity.
  • profit
    The difference between a firm’s revenue and its costs.
  • shifts in the supply and demand curves
    Consumer or producer willingness and ability to produce or consume goods and services shifts at every price level.
  • substitutes
    Commodities with a positive cross-elasticity of demand (a decrease in the price of one commodity will result in a decrease in the quantity demanded of the other commodity).

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Economics U$A: 21st Century Edition


Produced by the Educational Film Center. 2012.
  • Closed Captioning
  • ISBN: 1-57680-895-5