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A Change in Something Other Than Price:: Demand
A Change in Something Other Than Price:: Demand
A Change in Something Other Than Price:: Demand
A change in something
other than price:
Shift in demand
3
Shifts of the Demand Curve
Q3 Q1 Q2
Shifting the demand curve
4
Change in Income of consumers
Normal good:
A good for which the demand
increases as income rises, and
decreases as income falls.
Effect of increase in
income, if good is normal
Inferior good:
A good for which the demand
decreases as income rises, and
increases as income falls.
Effect of increase in
income, if good is inferior
5
Change in the Price of Related Goods
Substitutes:
Goods and services that can be used
for
the same purpose.
Effect on demand for Big
Macs, if price of Whopper
increases
Complements:
Goods and services that are used
together. Effect on demand for Big
Macs, if price of
McDonald’s fries
increases
6
Change in Demand vs. Change in Quantity
Demanded
shift.
This is a change in
demand.
7
Supply Schedules and Supply Curves
8
The Law of Supply
The law of supply: The rule that, holding everything
else constant, increases in price cause increases in
the quantity supplied, and decreases in price cause
decreases in the quantity supplied.
9
Increase and Decrease in Supply
A change in something
other than price that
affects supply causes
the entire supply curve
to shift.
10
Shifts of the Supply Curve
11
Changes in Prices of Inputs
Inputs are things used in the production
of a good or service.
12
Technological Change
13
Prices of Substitutes, and Number of Firms
Many firms can produce and sell more than
one product.
Example:
An Illinois farmer can plant corn or soybeans. If
the price of soybeans rises, he will plant
(supply) less corn. Effect on the supply of
corn, of an increase in the
price of soybeans
14
Change in Supply vs. Change in Quantity
Supplied
A change in the price of
the product being
examined causes a
movement along the
supply curve.
15
Consider the market for airlines and assume that it is a perfectly
competitive market. Assume the U.S. domestic market is currently
at equilibrium with a total of 642 million ticketed passengers per
year at a price of $375 per ticket.
16
Show with an arrow, the effect on demand or supply in the airlines
market, if a study claims that increased exposure to radiation from
flying has large negative health effects.
17
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Market Equilibrium
At a price of $200,
Qs=Qd=10 million
This is a market
equilibrium: a situation in
which quantity demanded
equals quantity supplied.
20
Market Equilibrium Price and Quantity
In this market:
Qd= 9 million
But…
Qs=11 million
What happens?
22
A Shortage in the Market for Smartphones
At a price of $100,
Qd=12 million
But…
Qs=8 million
23
Demand and Supply Both Count
Price is determined by the interaction of buyers
and sellers.
24
A Surplus in the Market for Smartphones
At a price of $250,
Qd= 9 million
But…
Qs=11 million
25
A Shortage in the Market for Smartphones
At a price of $100,
Qd=12 million
But…
Qs=8 million
26
Market Equilibrium
At a price of $200,
buyers want to buy
exactly as much as
sellers want to sell.
This is a market
equilibrium: a situation
in which quantity
demanded equals
quantity supplied.
27
The Effect of Shifts in Supply on Equilibrium
Amazon enters the
smartphone market:
Smartphones are a
normal good, so
demand shifts to the
right (D1 to D2).
Equilibrium price
rises (P1 to P2).
Equilibrium
quantity rises (Q1 to The effect of an increase in demand
on equilibrium
Q2).
29
How Much Will Price and Quantity Change?
By how much will price
fall? By how much will
quantity rise?
30
Shifts in Demand and Supply over Time
What happens in the long
run?