lecture 5 - supply and demand II.pptVIP

Decreases in Demand A decrease in demand can occur for several reasons: A decrease in income (for a normal good) A decrease in the price of a substitute good An increase in the price of a complementary good A decrease in population A shift in consumer tastes Favorable advertising Expectations of lower future prices Market Effects ofChanges in Demand Table 4.3 Changes in Demand Shift the Demand Curve (pg. 1) An increase in demand shifts the demand curve to the right when: A decrease in demand shifts the demand curve to the left when: The good is normal and income increases The good is normal and income decreases The good is inferior and income decreases The good is inferior and income increases The price of a substitute good increases The price of a substitute good decreases The price of a complementary good decreases The price of a complementary good increases Market Effects ofChanges in Demand Table 4.3 Changes in Demand Shift the Demand Curve (pg. 2) An increase in demand shifts the demand curve to the right when: A decrease in demand shifts the demand curve to the left when: Population increases Population decreases Consumer tastes shift in favor of the product Consumer tastes shift away from the product Consumers expect a higher price in the future Consumers expect a lower price in the future Market Effects ofChanges in Supply A change in price causes a change in quantity supplied. A change in supply (caused by changes in something other than the price of the good) shifts the entire supply curve. Change in Quantity Supplied versus Change in Supply Increases in Supply An increase in supply shifts the market supply curve to the right. At the initial price of $8, there is now excess supply. Equilibrium is restored at point n, with a lower equilibrium price ($6) and a larger equilibrium quantity (36,000). Causes of an Increase in Supply An increase in supply can occur for several reasons: A decrease in input costs. An increase in the number of producers. Expect