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Demand and Supply Shifters. Let's Take A Look At The Five Demand Shifters ["TIMER"]. Warning. Concentration on these slides is guaranted to improve your economics grade. 1."Change in Taste". [Direct]. D 2. D 1. P. QD 1. QD 2. 2. Change in Income. [Normal-Direct; Inferior-Inverse].

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Presentation Transcript

Let's Take A Look At The

Five Demand Shifters

["TIMER"]


Warning

Concentration on these slides is guaranted

to improve your economics grade.


1."Change in Taste"

[Direct]

D2

D1

P

QD1

QD2


2. Change in Income

[Normal-Direct; Inferior-Inverse]

Used Cars

New Cars

D2

D1

Less income

results in

more demand

for used cars;

less demand

for new cars.

More income

results in

more demand

for new cars;

less demand

for used cars.

P

QD1

QD2


3. Change in Market Size [Direct]

[Number of Consumers]

This is what we told 1 billion

Chinese, as new potential

consumers, when we opened

trade relations with them in

the 70s.

D2

D1

New Cars

P

More demand

for both new

and used cars

Used Cars

QD1

QD2


4. Expectations [of consumers]

[about future price, availibility, & income]

If Steve Jobs responds to iRate customers who

bought the iPhone at $599 and says, “iSorry,

we will raise the price back to $599 in 3 weeks.”

$399

D2

D1

Buy it now to save money.

iPhone

P

QD1

QD2


4. Expectations [of consumers]

[about future availibility of toilet tissue]

If there is expected to be a major shortage of toilet tissue,

then consumers will stock up now or risk not getting any.

D2

D1

P

QD1

QD2


4. Expectations [of consumers]

[about future income]

Let’s say that we are coming out of recession & consumers

feel secure about their jobs. [Positive future income]

D2

D1

P

QD1

QD2


4. Expectations [of consumers]

[about future income]

Let’s say that we are going into a recession and consumers

don’t feel secure about their jobs. [Negative future income]

D1

D2

P

QD2

QD1


5. Prices of Related Goods

[Substitutes-Direct; Complements-Inverse]

D1

D2

D

D1

P1

D2

P

P

P2

QD2

Complement

[Inverse]

QD1

Substitute

[Direct]

Cereal

Pop Tarts

Milk


Now, Let's Take A Look At

The Seven Supply Shifters

["RATNEST"]


1.ResourceCost[wages & raw materials][Inverse]

Wages

Raw Materials

If resource cost

increases

supply

Decreases

[making less $]

If resource cost

decreases

supply

Increases

[making more $]

S

S

S

P


2. Alternative Output Price Change [Inverse]

I only have 200 acres

“Substitutes in production”

Corn

S1

Broccoli

S2

P1

S

P2

P

QS1

QS2

Producers want to produce more of the good where price is increasing,

Corn

Broccoli

S1

S

P1

S2

P

P2

QS1

QS2

or at least, where the price is not going down.


3. Technological Improvement

[Cow Waterbeds]

Waterbedsforcows.com

We love these cow waterbeds because we get better blood flow and can produce 30% more milk.

Less skin abrasions

so happier cows

produce more milk.

Because cows

produce more

milk,farmers

don’t have to

have as many

cows.[saves$]

Supply curve

moves “udderly”

to the right.

S

S

P

Mooooove over and give me that waterbed.


P

S1

$50

Q

4. Number of Suppliers [Direct]

NFL

S3

XFL in 2001

8 new teams

Because of the

XFL’s cheerleaders

many called this

league, not the

XFL, but the

QS

QS

Supply of FB games each week

XFL [Extreme Football League]

XXXFL

Supply of FB games increased when the XFL was formed.


5. Producer Expectations about Future Price

[“INVERSE”]

S2

S1

S2

If oil producers expectfuture oilprices todecline, they will (increase/decrease) current production.

Oil Prices

expected

to decrease

Oil Prices

expected

to increase

P

If oil producers expect future oil prices to increase, they will (increase/decrease) current production.


6. Subsidies - free money from government

[Direct]

S3

S1

S2

P

Free money from the government (subsidies)

induces suppliers to supply more.

If subsidies are taken away, then suppliers are losing

money and will decrease supply.


7. Taxes Take Away Business Profits & Decrease Supply.

[Inverse]

S3

S1

S2

P

I’m losing

profits.”

If business have their taxes decreased,

it moves the supply curve to the right.

If business have their taxes increased,

it moves the supply curve to the left.



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