Transcript Demand Definitions: Reprise

Demand Definitions: Reprise
• In economics,
– A change in quantity demanded occurs when a
change in the price of the good itself causes a
consumer to buy more or less.
– A change in demand occurs when a consumer
buys more or less of a good because of a
change in some other variable that is not the
price of the good itself.
Change in Demand
• Changes in demand are shown by shifting
the demand curve.
– Increases in demand shift the demand curve to
the right.
Price
D2
D1
0
Quantity
Change in Demand
• Changes in demand are shown by shifting
the demand curve.
– Decreases in demand shift the demand curve to
the left.
Price
D1
D2
0
Quantity
Change in Demand: Causes
• A change in demand may be caused by any
of the following:
– A change in the price of a related product.
– A change in the buyer’s income.
– A change in the buyer’s tastes and
preferences.
– A change in the number of buyers.
A Change in the Price of Related
Products: Substitutes
• A decrease in the price of Y, a substitute for
X, causes the demand for X to fall.
– A decrease in the price of butter causes some
people to buy less margarine, a substitute for
butter.
• The demand curve for margarine shifts to the left.
– A decrease in the price of steak causes some
people to buy less chicken, a substitute for
steak.
• The demand curve for chicken shifts to the left.
A Change in the Price of Related
Products: Substitutes
• An increase in the price of Y, a substitute
for X, causes the demand for X to rise.
– An increase in the price of butter causes some
people to buy more margarine.
• The demand curve for margarine shifts to the
right.
– An increase in the price of steak causes some
people to buy more chicken.
• The demand curve for chicken shifts to the right.
A Change in the Price of Related
Products: Complements
• A decrease in the price of Y, a complement
for X, causes the demand for X to rise.
– A decrease in the price of gasoline causes some
people to travel more in their cars.
• Demand for travel shifts to the right.
– A decrease in the price of steak causes some
people to buy more steak sauce.
• Demand for steak sauce shifts to the right.
A Change in the Price of Related
Products: Complements
• An increase in the price of Y, a complement
for X, causes the demand for X to fall.
– An increase in the price of gasoline causes
some people to travel less in their cars.
• Demand for travel shifts to the left.
– An increase in the price of steak causes some
people to buy less steak sauce.
• Demand for steak sauce shifts to the left.
A Change in Income
• An increase in income permits a person to
spend more, causing demand for some
goods to increase.
– Demand shifts to the right as income rises.
• A decrease in income limits a person’s
ability to spend, causing demand for some
goods to decrease
– Demand shifts to the left as income falls.
A Change in Tastes and
Preferences
• Changes in tastes and preferences can cause
people to prefer more or less of any good.
• Tastes and preferences are influenced by
advertising, new information, growing
older, changing seasons, fads, etc.
– Favorable changes in tastes and preferences
shift demand to the right.
– Unfavorable changes in tastes and preferences
shift demand to the left.
A Change in the Number of
Buyers
• As the population increases, demand for
many goods increases.
– Demand shifts to the right.
• As the population decreases, demand for
many goods decreases
– Demand shifts to the left.
Supply Definitions: Reprise
• In economics,
– A change in quantity supplied occurs when a
change in the price of the good itself causes a
seller to be willing to sell more or less of the
good.
– A change in supply occurs when a seller is
willing to sell more or less of a good because of
a change in some other variable that is not the
price of the good itself.
Change in Supply
• Changes in supply are shown by shifting the
supply curve.
– Increases in supply shift the supply curve to the
right.
Price
S1
S2
0
Quantity
Change in Supply
• Changes in supply are shown by shifting the
supply curve.
– Decreases in supply shift the supply curve to
the left.
Price
S2
S1
Quantity
0
A Change in Supply: Causes
• A change in supply may be caused by any
of the following:
–
–
–
–
A change in the size of the industry
Technological progress
Changes in the price of inputs
Changes in the prices of related outputs
A Change in the Size of the
Industry
• An increase in the number of suppliers in an
industry increases supply.
– The supply curve shifts to the right.
• A decrease in the number of suppliers in an
industry decreases supply.
– The supply curve shifts to the left.
Technological Progress
• Technological progress that permits a
supplier to produce more, other things
remaining the same, increases supply.
– Technological progress increases productivity
which decreases costs so more can be supplied
at any given price.
• The supply curve shifts to the right.
A Change in the Price of Inputs
• A change in the price of inputs changes the
cost of production.
– If input prices increase, production costs
increase, and other things remaining the
same, a supplier will supply less at any given
price.
• The supply curve shifts to the left.
A Change in the Price of Inputs
• A change in the price of inputs changes the
cost of production.
– If input prices decrease, production costs
decrease, and other things remaining the same,
a supplier will supply more at any given price.
– The supply curve shifts to the right.
A Change in the Prices of Related
Products
• A change in the price of a good produced by
a multi-product industry may shift the
supply curves of all the other goods
produced by that industry.
– If the price of a product, good Y, increases,
firms have an incentive to shift resources to the
production of Y and away from the production
of another good such as good X.
– The supply curve for X shifts to the left.
A Change in the Prices of Related
Products
• A change in the price of a good produced by
a multi-product industry may shift the
supply curves of all the other goods
produced by that industry.
– If the price of a product, good Y, decreases,
firms have an incentive to shift resources to the
production of X and away from the production
of Y.
– The supply curve for X shifts to the right.