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

Quantity

D1

D2

0

Change in Demand

• Changes in demand are shown by shifting the demand curve.– Decreases in demand shift the demand curve to

the left.Price

Quantity

D1

D2

0

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.S1

S2

Price

Quantity0

Change in Supply

• Changes in supply are shown by shifting the supply curve.– Decreases in supply shift the supply curve to

the left.

S1

S2Price

Quantity0

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.