Shifting%20Supply%20

1
Shifting Supply Demand

• The Motion of a Free Market

2
Key Terms for SD Unit
Income
gt Demand

• Normal Good-

Income
gt Demand
Inferior Good-
Goods which can replace other goods
Substitute-
Px good A
gt Demand good B
Goods which go together (are needed to use the
other)
Complement-
Px good A
gt Demand good B
3
There is no UP or DOWN with curve shifts!
Curves will increase or decrease Curves
shift to the RIGHT or LEFT
(increase)
(decrease)
4
2 Types of Demand Changes

• 6 Determinants of Demand (TIPSEN) cause a shift
  in a demand curve
• A shift a Change in demand (new D-curve gt D2)
• Increase or decrease tells you direction
• Change in QUANTITY Demanded
• move along existing demand curve (no demand
  shift!)
• Q1 to Q2 is increase quantity demanded

5
6 Determinants of Demand

• A curve shift occurs whenever any Determinant of
  Demand changes

• (TIPSEN)
• Tastes
• Incomes
• Price Complements
• Substitute Price
• Expectations (future prices, income, etc)
• Number of Buyers

6
Example Change in Demand
Event The price of blue jeans falls
Market for T-shirts
TIPSEN ? Price of complement
falls ? Determinant of Demand
?ed ? Increase in Demand increase in QTY
supplied
Price
S1
-------------------
P2
E2
--------------
P1
E1
------------------
-------------
D2
D1
Q1
Q2
Qty
7
2 Types of Supply Changes

• 6 Determinants of Supply (TINE-TP) cause a shift
  in a supply curve
• A shift a Change in Supply (new s-curve gt S2)
• Increase or decrease tells you direction
• Change in QUANTITY Supplied
• move along existing supply curve (no shift!!)
• Q1 to Q2 increase in quantity supplied

8
6 Determinants of Supply

• A shift occurs whenever any Determinant of
  Supply changes

• (TINE) (TP)
• Technology
• Input Prices (cost of an input like oil, steel or
  labor)
• Number of Sellers
• Expectations (of future prices, etc)
• Also TP
• Taxes or Subsidies
• Price of other outputs (what else could you
  produce)

9
Sample Problem
Govt raises taxes on computer companies
TINE TP ? Taxes ? on producer
? Determinant of Supply ?ed
? Decrease in Supply (shifts left)
Decrease in QTY demanded (no shift!) Prices
rises Qty falls
Computers
Price
S1
E2
80,000
--------------
E1
-------------
D1
Qty
10,000
10
Practice Problem Worksheet