Demand & Supply Shifters

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Determinants of Demand and Supply are illustrated.

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Demand & Supply Shifters

  1. 1. Demand and Supply Shifters
  2. 2. Let's Take A Look At The Five Demand Shifters ["TIMER"]
  3. 3. Concentration on these slides is guaranted to improve your economics grade. Warning
  4. 4. D 1 D 2 P QD 1 QD 2 1."Change in Taste" [Direct] An increase in taste for DVDs results in an increase in demand . A decrease in taste for videos results in a decrease in demand . D 3 QD 3
  5. 5. D 1 D 2 P QD 1 QD 2 2. Change in Income [Normal-Direct; Inferior-Inverse] More income results in more demand for new cars; less demand for used cars. New Cars Used Cars Less income results in more demand for used cars; less demand for new cars.
  6. 6. D 1 D 2 P QD 1 QD 2 3. Change in Market Size [Direct] [Number of Consumers] More demand for both normal & inferior goods New Cars Used Cars This is what we told one billion Chinese , as new potential consumers , when we opened trade relations with them in 1972 .
  7. 7. D 1 D 2 P QD 1 QD 2 4. Expectations [of consumers] [about future price, availibility, & income] I f Steve Jobs responds to iRate customers who bought the iPhone at $599 and says, “ iSorry , we will raise the price back to $599 in 3 weeks.” iPhone $399 Buy it now to save money.
  8. 8. D 1 D 2 P QD 1 QD 2 4. Expectations [of consumers] [about future availibility of toilet tissue] If there is expected to be a major shortage of toilet tissue , then consumers will stock up now or risk not getting any.
  9. 9. D 1 D 2 P QD 1 QD 2 4. Expectations [of consumers] [about future income] Let’s say that we are coming out of recession & consumers feel secure about their jobs. [ Positive future income ]
  10. 10. D 1 D 2 P QD 1 QD 2 4. Expectations [of consumers] [about future income] Let’s say that we are going into a recession and consumers don’t feel secure about their jobs. [ Negative future income ]
  11. 11. Complement [ Inverse ] Substitute [ Direct ] Milk Cereal Pop Tarts D 1 D 2 P P 1 QD 1 P 2 D 1 D 2 D P 5. Prices of Related Goods [Substitutes-Direct; Complements-Inverse] QD 2
  12. 12. Now, Let's Take A Look At The Seven Supply Shifters ["RATNEST"]
  13. 13. 1. Resource Cost [wages & raw materials ] [Inverse] Wages Raw Materials Intel Pentium Chip S If resource cost decreases supply Increases [making more $] If resource cost increases supply Decreases [making less $] S S P
  14. 14. P1 P1 QS1 Broccoli “ Substitutes in production” I only have 200 acres S Corn S 1 P S 2 QS1 S 1 P S 2 S Corn Producers want to produce more of the good where price is increasing, or at least, where the price is not going down. Broccoli 2. Alternative Output Price Change [Inverse] P2 QS2 P2 QS2
  15. 15. S Because cows produce more milk, farmers don’t have to have as many cows. [ saves $ ] S P 3. Technological Improvement [Cow Waterbeds] We love these cow waterbeds because we get better blood flow and can produce 30% more milk . Supply curve moves “udderly” to the right. Less skin abrasions so happier cows produce more milk. Mooooove over and give me that waterbed. Waterbedsforcows.com
  16. 16. NFL Supply of FB games increased when the XFL was formed. S 2 QS 1 QS 2 XFL in 2001 4. Number of Suppliers [Direct] Because of the XFL’s cheerleaders many called this league, not the XFL, but the Supply of FB games each week XXXFL XFL [Extreme Football League] 8 new teams More games each year S 1 P Q $50
  17. 17. <ul><li>If oil p roducers expect future oil prices to decline , they will (increase/decrease) current production. </li></ul>S 1 Oil Prices expected to decrease 5. Producer Expectations about Future Price [“INVERSE”] P S 2 If oil p roducers expect future oil prices to increase , they will (increase/decrease) current production. S 2 Oil Prices expected to increase
  18. 18. S 3 [Direct] P 6. Subsidies - free money from government Free money from the government ( subsidies ) induces suppliers to supply more. S 1 S 2 If subsidies are taken away, then suppliers are losing money and will decrease supply.
  19. 19. S 3 [Inverse] P 7. Taxes Take Away Business Profits & Decrease Supply. If business have their taxes decreased , it moves the supply curve to the right. S 1 S 2 If business have their taxes increased , it moves the supply curve to the left. I’m losing profits.”
  20. 20. The End

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