Shifting Supply and Demand Shifting Demand Causes Income

Shifting Supply and Demand

Shifting Demand – Causes ◦ Income �increase �higher demand for “Normal Goods” �NORMAL GOODS – those ordinary purchases people make �decrease �lower demand for Normal Goods �increased demand for “Inferior Goods” �INFERIOR GOODS – those things you purchase which you desire less, but resort to purchasing if your income drops

Shifting Demand – Causes ◦ Expectations �expecting higher prices in the near future increases demand today �expecting lower prices in the near future decreases demand today ◦ Population �higher populations = higher market demand �lower populations = lower market demand

Shifting Demand – Causes ◦ Demographics �different categories of people �age �race �gender �pay/profession �a rise in certain demographic categories increases demand for goods that cater to those groups �a decrease in certain demographic categories decreases demand for goods that cater to those groups

Shifting Demand – Causes ◦ Tastes and Advertising �media affects what people desire �fads – temporary desire for certain goods �pet rocks �heelys

Shifting Demand – Causes ◦ Costs of “Related Goods” �Complements �goods used together �i. Pods and earbuds �cereal and milk �a rise in the cost of one decreases the demand of the other �a decrease in the cost of one increases the demand of the other

Shifting Demand – Causes ◦ Costs of “Related Goods” �Substitutes �goods used in place of each other �butter or margarine �cable vs. direct tv �a rise in the cost of one increases the demand for the other �a decrease in the cost of one decreases the demand for the other

Shifting Demand – Graphing ◦ an increase in demand �shifts ONLY the demand curve to the right �increases the price where equilibrium lies

Shifting Demand – Graphing ◦ a decrease in demand �shifts ONLY the demand curve to the left �decreases the price where equilibrium lies

Shifting Supply – Causes ◦ costs of resources to create the product �examples �new gas fields discovered lowers cost oil �a severe drought makes more irrigation necessary, increasing the costs to farmers �increasing costs = decreased supply �decreasing costs = increased supply

Shifting Supply – Causes ◦ Technology �better technology lowers production costs �better technology increases supply ◦ Subsidies �government money given to a business to product a good or service �increased subsidies = increased supply �decreased subsidies = decreased supply

Shifting Supply – Causes ◦ excise tax �a government tax on the production or sale of a good or service �raises the overall cost of the product �higher taxes = decreased supply �lower taxes = increased supply

Shifting Supply – Causes ◦ Regulations �government rules on production of goods �meeting the government regulations increases costs to producers �increased regulation = decreased supply �decreased regulation = increased supply

Shifting Supply – Causes ◦ events in other countries �other countries can increase THEIR supply of traded goods = increased supplies of those goods for US �other countries must decrease THEIR supply of traded goods = decreased supplies of those goods for US

Shifting Supply – Causes ◦ future expectations �producers believe prices will rise in future �decreased supply now �increased supply later �producers believe prices will drop in future �increased supply now �decreased supply later

Shifting Supply – Causes ◦ number of suppliers �more suppliers = increased supply �less suppliers = decreased supply

Shifting Supply – Graphing ◦ an increase in supply �shifts ONLY the supply curve to the right �decreases the price where equilibrium lies

Shifting Supply – Graphing ◦ decrease in supply �shifts ONLY the supply curve to the left �increases the price where equilibrium lies