III. Changes in Demand A. Change in the quantity demanded due to a price change occurs ALONG the demand curve An increase in the Price of Cupcakes from.

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Presentation transcript:

III. Changes in Demand A. Change in the quantity demanded due to a price change occurs ALONG the demand curve An increase in the Price of Cupcakes from $3 to $4 will lead to a decrease in the Quantity Demanded from 6 to 4.

B. Demand Curves can also shift in response to the following factors: (BITER: factors that shift the demand curve) 1. Buyers (# of): changes in the number of consumers 2. Income: changes in consumers’ income 3. Tastes: changes in preference or popularity of product/ service 4. Expectations: changes in what consumers expect to happen in the future 5. Related goods: compliments and substitutes

Prices of related goods affect on demand a. Substitute goods a substitute is a product that can be used in the place of another. -The price of the substitute good and demand for the other good are directly related -For example: Coke Price Pepsi Demand

b. Complementary goods a compliment is a good that goes well with another good. -When goods are complements, there is an inverse relationship between the price of one and the demand for the other -For example: Peanut Butter Price Jelly Demand

Changes in Demand Several factors will change the demand for the good (shift the entire demand curve) As an example, suppose consumer income increases. The demand for cupcakes at all prices will increase.

Changes in Demand Demand will also decrease due to changes in factors other than price. As an example, suppose cupcakes become less popular to own.

IV. Changes in Supply A. Change in the quantity supplied due to a price change occurs ALONG the supply curve If the price of Cupcakes fell to $2, then the Quantity Supplied would fall to 4 Cupcakes.

Changes in Supply B. Supply Curves can also shift in response to the following factors: (STONER: factors that shift the supply curve) 1. Subsidies and taxes: government subsides encourage production, while taxes discourage production 2. Technology: improvements in production increase ability of firms to supply 3. Other goods: businesses consider the price of goods they could be producing (compliments or substitutes) 4. Number of sellers: how many firms are in the market 5. Expectations: businesses consider future prices and economic conditions 6. Resource costs: cost to purchase factors of production will influence business decisions

Changes in Supply C. Changes in any of the factors other than price causes the supply curve to shift either: 1. Decrease in Supply shifts to the Left (Less supplied at each price) OR 2. Increase in Supply shifts to the Right (More supplied at each price)