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Shifting Supply & Demand. The Motion of a “Free Market”. Soda & Water. Gas & Cars. Key Terms for S & D Unit. Income. => Demand. Normal Good-. Income. => Demand. Inferior Good-. Substitute-. Goods which can “ replace ” other goods. Px good A. => Demand good B. Complement-.
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Shifting Supply & Demand The Motion of a “Free Market”
Soda & Water Gas & Cars Key Terms for S&D Unit Income => Demand Normal Good- Income => Demand Inferior Good- Substitute- Goods which can “replace” other goods Px good A => Demand good B Complement- Goods which “go together” (are needed to use the other) Px good A => Demand good B
There is noUP or DOWN with curve shifts! Curves will increaseordecrease Curves shift to the RIGHT or LEFT (increase) (decrease)
2 Types of Demand Changes • 6 Determinants of Demand (TIPSEN) cause a shift in a demand curve • A shift = a Change in demand (new D-curve => D2) • Increase or decrease tells you direction • Change in QUANTITY Demanded • move along existing demand curve (no demand shift!) • Q1 to Q2 is increase quantity demanded
6 Determinants of Demand • A curve shift occurs whenever any Determinant of Demand changes (TIPSEN) • Tastes • Incomes • Price Complements • Substitute Price • Expectations (future prices, income, etc…) • Number of Buyers
Example:Change in Demand Event: The price of blue jeans falls Market for T-shirts TIPSEN ↓ Price of complement falls ↓ Determinant of Demand ∆ed ↓ Increase in Demand & increase in QTY supplied Price S1 P2 ------------------- E2 -------------- P1 E1 ------------------ ------------- D2 D1 Q1 Q2 Qty
2 Types of Supply Changes • 6 Determinants of Supply (TINE-TP) cause a shift in a supply curve • A shift = a Change in Supply (new s-curve => S2) • Increase or decrease tells you direction • Change in QUANTITY Supplied • move along existing supply curve (no shift!!) • Q1 to Q2 increase in quantity supplied
6 Determinants of Supply • A shift occurs whenever any Determinant of Supply changes (TINE) & (TP) • Technology • Input Prices (cost of an input like oil, steel or labor) • Number of Sellers • Expectations (of future prices, etc…) • Also: TP • Taxes or Subsidies • Price of other outputs (what else could you produce)
S2 P2 ---------- ----------------- Q2 Sample Problem Gov’t raises taxes on computer companies TINE TP ↓ Taxes ↑ on producer ↓ Determinant of Supply ∆ed ↓ Decrease in Supply (shifts left) & Decrease in QTY demanded (no shift!) Prices rises & Qty falls Computers Price S1 E2 80,000 -------------- E1 ------------- D1 Qty 10,000
