Shifting Supply and Demand

Shifting Demand – Causes Income increase higher demand for “Normal Goods” NORMAL GOODS – those ordinary purchases people make decrease lower demand for Normal Goods increased demand for “Inferior Goods” INFERIOR GOODS – those things you purchase which you desire less, but resort to purchasing if your income drops

Shifting Demand – Causes Expectations expecting higher prices in the near future increases demand today expecting lower prices in the near future decreases demand today Population higher populations = higher market demand lower populations = lower market demand

Shifting Demand – Causes Demographics different categories of people age race gender pay/profession a rise in certain demographic categories increases demand for goods that cater to those groups a decrease in certain demographic categories decreases demand for goods that cater to those groups

Shifting Demand – Causes Tastes and Advertising media affects what people desire fads – temporary desire for certain goods pet rocks heelys

Shifting Demand – Causes Costs of “Related Goods” Complements goods used together iPods and earbuds cereal and milk a rise in the cost of one decreases the demand of the other a decrease in the cost of one increases the demand of the other

Shifting Demand – Causes Costs of “Related Goods” Substitutes goods used in place of each other butter or margarine cable vs. direct tv a rise in the cost of one increases the demand for the other a decrease in the cost of one decreases the demand for the other

Shifting Demand – Graphing an increase in demand shifts ONLY the demand curve to the right increases the price where equilibrium lies

Shifting Demand – Graphing a decrease in demand shifts ONLY the demand curve to the left decreases the price where equilibrium lies

Shifting Supply – Causes costs of resources to create the product examples new gas fields discovered lowers cost oil a severe drought makes more irrigation necessary, increasing the costs to farmers increasing costs = decreased supply decreasing costs = increased supply

Shifting Supply – Causes Technology better technology lowers production costs better technology increases supply Subsidies government money given to a business to product a good or service increased subsidies = increased supply decreased subsidies = decreased supply

Shifting Supply – Causes excise tax a government tax on the production or sale of a good or service raises the overall cost of the product higher taxes = decreased supply lower taxes = increased supply

Shifting Supply – Causes Regulations government rules on production of goods meeting the government regulations increases costs to producers increased regulation = decreased supply decreased regulation = increased supply

Shifting Supply – Causes events in other countries other countries can increase THEIR supply of traded goods = increased supplies of those goods for US other countries must decrease THEIR supply of traded goods = decreased supplies of those goods for US

Shifting Supply – Causes future expectations producers believe prices will rise in future decreased supply now increased supply later producers believe prices will drop in future increased supply now decreased supply later

Shifting Supply – Causes number of suppliers more suppliers = increased supply less suppliers = decreased supply

Shifting Supply – Graphing an increase in supply shifts ONLY the supply curve to the right decreases the price where equilibrium lies

Shifting Supply – Graphing decrease in supply shifts ONLY the supply curve to the left increases the price where equilibrium lies