Appendix to Chapter 3
Consumer and Producer Behavior:. The Basis for Demand and Supply
This appendix is for those who wish to develop the demand and supply functions based in more detail on individual behavior. This appendix provides extensive use of marginal analysis, providing a more rigorous basis for demand and supply. It expands students' understanding of marginal benefit and cost, opportunity cost, and economic profit. It also introduces the concept of consumer surplus. It shows that demand and supply curves are firmly grounded in individual behavior. By first establishing the conditions for efficient production and then showing that a competitive market solution involves efficient production it provides an elementary proof that competition yields productive efficiency.
We have moved this material to an appendix because we decided to increase the emphasis on markets as coordinating mechanisms and to reduce but not eliminate the emphasis on efficiency in the chapters of the text. By putting this material in an appendix, those users who want to continue a stronger emphasis on efficiency can do so.

Instructional Objectives
After completing this chapter, your students should know:

1. Why the demand curve has a negative slope.
2. The concept of consumer surplus and its importance.
3. The concepts of explicit cost, implicit cost, and normal rate of earnings and their relation to supply.
4. Why the supply curve has a positive slope.

Terms from Previous Chapters
You should review the terms in this section at the beginning of 'your discussion of the appendix.

opportunity cost (Chapter 1)
demand schedule (Chapter 1)
law of demand (Chapter 1)
supply schedule (Chapter 1)
law of supply (Chapter 1)
Return to Textbook Materials Page