Supply and demand (Chapter 3).ppt

* Determinants of Demand2. Tastes Example: Following the release of Jurassic Park and The Lost World, tastes in children’s toys shifted toward designs involving prehistoric reptiles. * Determinants of Demand3. Prices of substitutes * Determinants of Demand3. Prices of substitutes * Determinants of Demand3. Prices of substitutes * Determinants of Demand4. Prices of complements * Determinants of Demand4. Prices of complements * Determinants of Demand4. Prices of complements * Determinants of DemandA summary Factors That Cause an Increase (rightward or upward shift) in Demand A decrease in the price of complements to the good or service An increase in the price of substitutes for the good or service An increase in income (for a normal good) An increased preference by demanders for the good or service An increase in the population of potential buyers An expectation of higher prices in the future * Determinants of supply1. Technology Example: A more efficient lobster trap is invented. A more efficient lobster trap shifts supply to the right * Determinants of supply2. Factor prices Example: The price of gasoline rises. Rising factor prices shift supply to the left. * Determinants of supplyA summary Factors That Cause an Increase (rightward or upward shift) in Supply A decrease in the cost of materials, labor, or other inputs used in the production of the good or service An improvement in factors that reduces the cost of producing the good or service advancement in technology an improvement in weather, especially for agricultural products an increase in competition, e.g., the number of suppliers An expectation of lower prices in the future * Example 1 Why do the prices of some goods, like apples, go down during the months of heaviest consumption, while others, like beachfront cottages, go up? * Example 1 The seasonal consumption increase is the result of a supply increase in the case of apples, a demand increase in the case of cottages. * Example 2 What will ha