1. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2Shifts of Demand and Supply Curves  Explain how a shift of the demand curve affects equilibrium price and quantity.  Explain how a shift of the supply curve affects equilibrium price and quantity.  Explain what happens to equilibrium price and quantity if both curves shift. Objectives

2. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2Shifts of Demand and Supply Curves  increase in demand  decrease in demand  increase in supply  decrease in supply Key Terms

3. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 3 Shifts of the Demand Curve A shift of the demand curve means that quantity demanded changes at each price.

4. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 4 What Could Shift the Demand Curve? An increase in the money income of consumers An increase in the price of a substitute A change in expectations A growth in the population of consumers A change in consumer tastes

5. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 5 An Increase in Demand An increase in demand means that consumers are now more willing and able to buy the product at every price.

6. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 6 Effects of an Increase in Demand Figure 6.2

7. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 7 A Decrease in Demand A decrease in demand means that consumers are less willing and able to buy the product at every price.

8. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 8 Effects of an Decrease in Demand Figure 6.3

9. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 9 Summary of Demand Shifts If the demand curve shifts rightward, price and quantity increase. If the demand curve shifts leftward, price and quantity decrease.

10. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 10 Shifts of the Supply Curve A shift of the supply curve means that quantity supplied changes at each price.

11. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 11 What Could Shift the Supply Curve? A reduction in the price of a resource A decline in the price of another good these resources could make A technological breakthrough A change in expectations An increase in the number of producers

12. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 12 An Increase in Supply An increase in supply means that producers are more willing and able to supply pizza at every price.

13. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 13 Effects of an Increase in Supply Figure 6.4

14. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 14 A Decrease in Supply A decrease in supply means that producers are less willing and able to supply the product at every price.

15. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 15 Effects of a Decrease in Supply Figure 6.5

16. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 16 Summary of Supply Shifts If the supply curve shifts rightward, price decreases but quantity increases. If supply shifts leftward, price increases but quantity decreases.

17. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 17 Both Curves Shift Curves shift in the same direction Equilibrium quantity will increase. What happens to price depends on which curve shifts more. Curves shift in opposite directions Equilibrium price will increase if demand increases and supply decreases. Equilibrium price will decrease if demand decreases and supply increases.

18. CONTEMPORARY ECONOMICS© Thomson South-Western 6.2 Shifts of Demand and Supply Curves SLIDE 18 Change in Supply Increase Decreases IncreasesDecreases Change in Demand Equilibrium price change is indeterminate. Equilibrium quantity increases. Equilibrium price falls. Equilibrium quantity change is indeterminate. Equilibrium price rises. Equilibrium quantity change is indeterminate. Equilibrium price change is indeterminate. Equilibrium quantity decreases. Figure 6.6