Demand and Supply Shifters

1. Demand and Supply Shifters

2. Warning Concentration on these slides is guaranted to improve your economics grade.

3. Let's Take A Look At The Five Demand Shifters

4. 1."Change in Taste" I love root beer! Another float, Please! D2 D1 P QD1 QD2

5. 2. Change in Income New Cars D2 D1 Less income results in less demand for new cars. More income results in more demand for new cars; P QD1 QD2

6. 3. Change in Market Size [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

7. 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

8. 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

9. 5. Prices of Related Goods D1 D2 D D1 P1 D2 P P P2 QD2 Complement QD1 Substitute Cereal Pop Tarts Milk

10. Now, Let's Take A Look At The Five Supply Shifters

11. 1.ResourceCosts [wages & raw materials] Raw Materials Wages If resource costs Increase, supply Decreases [making less $] If resource costs Decrease, supply Increases [making more $] S S S P

12. 2. Price Change in Substitutes “Substitutes in production” Corn S1 Broccoli S2 P1 S P2 P QS1 QS2 Whoa, the price of Broccoli went up! Got to plant more of that now! Producers want to produce more of the good that they can charge a higher price for.

13. 3. Technological Improvement [Cow Waterbeds] 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$] S Supply curve moves “udderly” to the right. S P

14. P S1 $50 Q 4. Number of Suppliers NFL S2 AFL in 2001 (Arena Football League) A new league is created so there are more games! 8 new teams QS QS Supply of FB games each week Supply of FB games increased when the AFL was formed.

15. 5. Producer Expectations about Future Price 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.