A TSI Graphics Worth Mankiw Economics 5e where S( represents the supply function. Finally, the economist assumes that the price of pizza adjusts to bring the quantity supplied and quantity demanded into These three equations compose a model of the market for pizza The economist illustrates the model with a supply-and-demand diagram, as in Figure 1-5. The demand curve shows the relationship between the quantity of pizza demanded and the price of pizza, while holding aggregate income con- stant. The demand curve slopes downward because a higher price of pizza en- ourages consumers to switch to other foods and buy less pizza. The supply curve shows the relationship between the quantity of pizza supplied and the price of pizza, while holding the price of materials constant. The supply curve slopes u ward because a higher price of pizza makes selling pizza more profitable, which encourages pizzerias to produce more of it. The equilibrium for the market is the price and quantity at which the supply and demand curves intersect. At the equi librium price, consumers choose to buy the amount of pizza that pizzerias choose to produce This model of the pizza market has two exogenous variables and two endoge nous variables. The exogenous variables are aggregate income and the price of materials. The model does not attempt to explain them but takes them as given (perhaps to be explained by another model). The endogenous variables are the Price of pizza, P The Model of Supply and The most famous economic model is that of supply and demand fo service-in this case, pizza The demand curve is a downward Market relating the price of pizza to the quantity of pizza that consumers demand. The supply curve is an upward Demand price of pizza to the quantity of pizza that pply. The price of Quantity of pizza,@ demanded. The point where he two curves cross is the market equilibrium which shows the equilibrium price Fr,Nav9,200111:52User SONPR:Job EFF01417:6264_ch01:Pg 8:24481#/eps at 100% *24481* Fri, Nov 9, 2001 11:52 AM where S( ) represents the supply function. Finally, the economist assumes that the price of pizza adjusts to bring the quantity supplied and quantity demanded into balance: Qs = Qd . These three equations compose a model of the market for pizza. The economist illustrates the model with a supply-and-demand diagram, as in Figure 1-5.The demand curve shows the relationship between the quantity of pizza demanded and the price of pizza, while holding aggregate income con￾stant.The demand curve slopes downward because a higher price of pizza en￾courages consumers to switch to other foods and buy less pizza.The supply curve shows the relationship between the quantity of pizza supplied and the price of pizza, while holding the price of materials constant.The supply curve slopes up￾ward because a higher price of pizza makes selling pizza more profitable, which encourages pizzerias to produce more of it.The equilibrium for the market is the price and quantity at which the supply and demand curves intersect.At the equi￾librium price, consumers choose to buy the amount of pizza that pizzerias choose to produce. This model of the pizza market has two exogenous variables and two endoge￾nous variables.The exogenous variables are aggregate income and the price of materials.The model does not attempt to explain them but takes them as given (perhaps to be explained by another model).The endogenous variables are the 8 | PART I Introduction figure 1-5 Supply Demand Price of pizza, P Quantity of pizza, Q Equilibrium price Equilibrium quantity Market equilibrium The Model of Supply and Demand The most famous economic model is that of supply and demand for a good or service—in this case, pizza. The demand curve is a downward-sloping curve relating the price of pizza to the quantity of pizza that consumers demand. The supply curve is an upward￾sloping curve relating the price of pizza to the quantity of pizza that pizzerias supply. The price of pizza adjusts until the quantity supplied equals the quantity demanded. The point where the two curves cross is the market equilibrium, which shows the equilibrium price of pizza and the equilibrium quantity of pizza