1. Shifting Supply & Demand
The Motion of a “Free Market”

2. Key Terms for S&D Unit Income => Demand Normal Good- Income
Inferior Good-
=> Demand
Substitute-
Goods which can “replace” other goods
Soda & Water
Px good A
=> Demand good B
Complement-
Goods which “go together” (are needed to use the other)
Px good A
=> Demand good B
Gas & Cars

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
1) Change in Demand
Shift in Demand Curve (new demand curve)
Q1 to Q2 is an increase in demand
2) Change in QUANTITY Demanded
move along existing curve (no shift!!)
Q1 to Q2 is increase quantity demanded

5. Determinants of Demand & Supply
6 Determinants of Demand (TIPSEN) cause a shift in a demand curve
A shift = a “change” in demand
Increase or decrease tells you direction
6 Determinants of Supply (TINE-TP) cause a shift in a supply curve
A shift = a “change” in supply

6. 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

7. Example: Change in Demand (shift)
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

8. 2 Types of Supply Changes
Change in QUANTITY Supplied
move along existing curve (no shift!!)
Q1 to Q2 increase in quantity supplied
Change in Supply
Shift in supply curve (new supply curve)
Q1 to Q2 Increase in supply

9. 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)

10. Sample Problem Gov’t raises taxes on computer companies Computers S2
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 S2
Price S1 P2 E2 Q2
80,000 E1 D1
10,000
Qty

11. Practice Problems