Supply and Demand in Action Changes in demand

Supply and Demand in Action

Changes in demand

Increase in demand Caused by change in determinants of demand except the price of the product. Causes of increase in demand include… • increase in price of a substitute product • decrease in the price of a complementary product • increase in consumers’ income • greater consumer preference for product • expected increase in the price of product

Equilibrium re-established at E 1 Expansion thewhen supplydemand curve (Eincreases? to E 1) What happens. ALONG to supply Higher price (P 1) and a higher quantity (Q 1)

Decrease in demand Caused by change in determinants of demand except the price of the product. Causes of decrease in demand include… • fall in price of a substitute product • increase in price of a complementary product • fall in consumers’ income • reduced preference for the product • expected fall in the price of the product

Equilibrium re-established at E 2 What happens to supply when demand decreases? Contraction ALONG the supply curve (E to E ) 1 Lower price (P 2) and a lower quantity (Q 2)

Changes in supply

Increase in supply Caused by change in determinants of supply except the price of the product. Causes of increase in supply include… • fall in price of alternative product • rise in the price of joint product • increase in price of FOP or other inputs • deterioration in productivity of FOP (technological progress)

Equilibrium re-established at E 1 Expansion ALONG the demand curve (E to E 1) What happens to demand when supply increases? Lower price (P 1) and a higher quantity (Q 1)

Decrease in supply Caused by change in determinants of supply except the price of the product. Causes of decrease in supply include… • rise in price of alternative product • fall in the price of joint product • reduction in price of FOP or other inputs • improvement in productivity of FOP (technological progress)

Equilibrium re-established at E 2 Contraction the demand curvedecreases? (E to E 2) What happens. ALONG to demand when supply Higher price (P 2) and a lower quantity (Q 2)

Simultaneous changes in demand supply

When more than one change is involved, it is not always possible to predict the outcome, since the changes may work in opposite directions.

(a) quantity remains unchanged at Q 0 (b) quantity falls to Q 2 (c) quantity increases to Q 3.

Explain the effects on supply, demand the resulting market price of Brussel Sprouts based on the factors mentioned in the video. VIDEO: Brussels Sprouts Demand increases/decreases – WHY? Supply increases/decreases – WHY? This results in the price of Brussel Sprouts increasing/decreasing.

Now let’s see what you know…

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