There is a difference between… A change in quantity demanded This is influenced by PRICE It results in a movement ALONG the demand curve A change in demand Results in a shift or movement of the ENTIRE demand curve.

Economics Please pick up a PINK sheet from the front table AND take out the answer sheet you filled out yesterday (….with all the scenarios)

What did we do in class yesterday? Recap What did we do in class yesterday?

FYI… Volunteers needed today to draw AMAZING supply and demand curves

Determinants of Demand SSEMI3A

Change in Consumer Income When a large number of consumers in the market experience a change in income, the entire demand curve may shift. Example: If the USA is experiencing major economic growth, employers will have to compete with one another for workers and wages of consumers will rise. Therefore, demand for goods, like automobiles, will rise.

One more thing about Consumer Income… Inferior Goods: goods for which demand will increase as consumer income decreases. For example, in a recession when consumer income is falling, the demand for groceries at specialty organic grocery chain stores may decrease, but there is an increase in demand for groceries sold at warehouse style discount stores.

Change in Consumer Taste When a large number of consumers experience a change in preference toward or away from a good, the demand will change. This is usually influenced by marketing, news, research, etc. For example, as more information became available and marketing campaigns targeted the obesity problem, more and more consumers rejected high fat, high calorie foods. This led to a decrease in demand for many fast food items.

Change in Price of Substitute Good When there is a substitute available for a good that has a higher price, the demand curve for the substitute good will increase. For example, lets assume doughnuts and bagels are substitutes. As the price of doughnuts rises, consumers buy a smaller quantity of doughnuts, but they also buy more bagels at all prices, shifting the demand curve for bagels to the right.

Change in Price of Complementary Good Many goods have a complementary good, which is something that is consumer with the original good. If there is a change in demand for one of these goods, there will also be a change in demand for its complement. For example, when the price of peanut butter increases, the quantity demanded for both peanut butter AND jelly will decrease.

Change in Consumer Price Expectation For example, during the recession of 2008-09, house prices fell drastically. The low prices usually act as a signal for consumers to buy a larger quantity of the properties. However, because many economists predicted a large number of foreclosures were still on the way, the entire demand for houses decreased. Sometimes, consumers predict that market prices for a good or service are going to change in the future. If they think the price will fall, they will delay their purchase until that time. If they think it will increase, they will buy more now.

Change in Number of Consumers in the Market The demand for a particular good may increase or decrease due to more or less people in the market for the good. For example, before ecommerce, most businesses sold to people living in their area. As people began to use online shopping, businesses with an online presence experienced an increase in demand.

Determinants of Supply SSEMI3A

Change in the Cost of Factors of Production When input prices rise, producers must spend more of their revenue to buy the inputs and therefore are forced to reduce their supply of the good due to the greater expense (and vice versa) For a candy maker, if the price of sugar rises, the producers of the candy will have to spend more to buy the sugar input and will supply less candy to the market.

Change in Profit Opportunities Many producers of goods and services have factories or businesses that are flexible. If they see that more profit is to be made by producing another good, they will increase supply of that good while reducing the supply of the original good. For example, at some point most producers of electronics made VCRs. When consumer taste shifted in favor of DVDs, producers would increase supply of DVDs and decrease supply of VHS.

Change in Producer Price Expectation Sometimes producers predict markets prices are going to change in the future. If they think the price will go lower in the future, they can increase their supply now (and vice versa) For example, if they expect gas prices to rise in the summer, they may reduce their supply of gasoline to the market in the spring, waiting for the higher summer prices.

Change in the Number of Sellers The supply of a particular good or service may increase or decrease due to a change in the number of sellers in the market for the good. For example, before the World Wide Web, someone in a small town might only have access to one seller in the market for baseball equipment. With the growth of ecommerce, the person in the small town can now choose to order from hundreds of sellers online.

Change in Technology Technological improvements in the tools or processes used to make goods and services increases the supply of those items because it makes production cheaper. For example, before computers, all records were handwritten or typed on a typewriter. Large numbers of filing cabinets were required. Imagine the time, money, and space saved by being able to use a computer.