Chapter 6 Section 2

A shift in the entire supply curve will change the equilibrium price and quantity. A shift to the right or the left creates a new equilibrium.

Factors that cause a shift in supply to the left or to the right include advances in technology, new government taxes and subsidies, and changes in the prices of the raw materials and labor used to produce the good.

Technology has lowered the cost of the manufacturing these advances in production have allowed manufacturers to produce many products at lower prices.

Surplus-situation in which quantity supplied is greater than quantity demanded; also known as excess supply.

Equilibrium is a “moving target” that changes as market conditions change.

Search Costs- Financial and opportunity costs consumers pay in searching for a good or a service

Shifts in Demand Every year new fads come and go in the market. Making customers mad for this new, “amazing” product Fads such as these reflect the impact of consumer tastes and advertising on consumer behavior. A rapid, right forward shift in market demand will affect the equilibrium in the market for a new good.

Return to Equilibrium As time passes firms react to signs of excess demand and raise their prices For example… If a parent wanted to buy a toy for their child, and they could not find the toy the child wanted at a store, the parent could offer the store keeper extra money to guarantee that the parent would receive the toy when they got their next shipment.

Customers may actually push prices up on their own. If there is “bidding” in the market the price could possibly go higher and higher, depending on how much the customer is willing to pay. This “bidding” takes place in the market of things such as: real estate, livestock, antiques, fine art, and other hard to find items.

When a demand increases for a good, the equilibrium price, as well as the equilibrium, quantity increase as well. When this happens the demand curve shifts, and the equilibrium point moves. Demand curve sets the market forces in motion that push prices and quantity toward new equilibrium values.

Supply Curve When demand falls, demand curve shifts to the right. In the opposite situation, a increase in market demand shifts the demand curve to the right. This shift leads to excess demand at the original price (point B) Before the fad begins, the quantity demanded and the quantity supplied were equal (point A)

Supply Curve

A Fall in Demand As a fad passes its peak, the demand for the good could decrease just as quickly as it rose. When the fad’s demand decreases, the excess demand then turns into excess supply.

When demand for a good falls, the demand curve then shifts to the left. Suppliers react to this demand decrease by cutting prices, making them cheaper and easier to be purchased by the customers. When the price decreases the demand usually gradually increases again.

The price and quantity sold slide down along the supply curve to a new equilibrium point at point A. When the fad comes to an end, a new fad will eventually come, and customers will go crazy trying to buy the new popular good, until that too goes “out of style” The end of the Fad restores the original price and the quantity supplied.

Questions

What conditions lead to a surplus? When quantity supplied is greater than quantity demanded.

What is an example of a search cost? Driving to different stores and calling different towns to find an available item

An outbreak of food poisoning is traced to eggs. Explain how the equilibrium price and quantity sold of eggs will change in the following cases. Remember that they need not move in the same direction. An outbreak of food poisoning is traced to eggs. Scientists breed new chickens that lay twice as many eggs each week. A popular talk show host convinces her viewers to eat an egg a day. A) The price will go up and the quantity sold will decrease B) C) lower price, high quantity.

What will happen to suppliers in a market if there is a surplus of the good they sell, but no supplier can afford to lower prices? The demand curve shifts to the left; suppliers will be forced to go out of business.

What is a sudden drop in the supply of a good called? shortage

The financial and opportunity costs consumers pay in searching for a good or service is ____________________. Search costs

How do computers lower search costs for producers and consumers? They provide convenience to look up, search, and find products without the loss of time compared to driving around; also if the stores that offer the good or service you're looking for is not within driving or close range, thatsssssss nice.

Explain how a market reacts to a change in demand by moving to a new equilibrium. The demand curve will shift, depending on whether its an increase in a demand or decrease.

Explain how a market reacts to a change in supply by moving to a new equilibrium. The supply curve on the chart will move, depending on whether it’s a shortage or a surplus.

By Allison Bryant, Jessica Clark, & Kendra Rich