What Two Conditions Must Buyers Meet In Order For There To Be Demand For A Good Or Service

Affiliate three. Demand and Supply

iii.2 Shifts in Demand and Supply for Appurtenances and Services

Learning Objectives

By the end of this section, you volition exist able to:

• Identify factors that affect demand
• Graph need curves and need shifts
• Identify factors that affect supply
• Graph supply curves and supply shifts

The previous module explored how toll affects the quantity demanded and the quantity supplied. The result was the demand curve and the supply bend. Price, however, is not the only matter that influences need. Nor is it the only matter that influences supply. For example, how is need for vegetarian nutrient affected if, say, wellness concerns crusade more consumers to avoid eating meat? Or how is the supply of diamonds affected if diamond producers discover several new diamond mines? What are the major factors, in add-on to the price, that influence demand or supply?

Visit this website to read a brief notation on how marketing strategies can influence supply and demand of products.

What Factors Touch on Need?

We defined need as the amount of some product a consumer is willing and able to purchase at each cost. That suggests at to the lowest degree two factors in addition to toll that affect demand. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither need nor want something, you will non purchase information technology. Power to purchase suggests that income is important. Professors are normally able to beget better housing and transportation than students, because they have more income. Prices of related goods can affect demand also. If you lot need a new car, the price of a Honda may touch your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater their demand for habiliment. The more driving-age children a family unit has, the greater their need for car insurance, and the less for diapers and baby formula.

These factors thing both for demand by an individual and demand by the marketplace as a whole. Exactly how exercise these diverse factors bear on demand, and how do we bear witness the effects graphically? To reply those questions, we need the ceteris paribus supposition.

The Ceteris Paribus Supposition

A demand curve or a supply bend is a human relationship between two, and only two, variables: quantity on the horizontal axis and cost on the vertical centrality. The supposition behind a demand curve or a supply curve is that no relevant economical factors, other than the product's toll, are changing. Economists call this assumption ceteris paribus, a Latin phrase meaning "other things being equal." Any given demand or supply curve is based on the ceteris paribus supposition that all else is held equal. A need bend or a supply curve is a human relationship betwixt two, and just ii, variables when all other variables are kept constant. If all else is not held equal, and then the laws of supply and demand will not necessarily hold, equally the following Clear It Upward feature shows.

When does ceteris paribus apply?

Ceteris paribus is typically practical when we look at how changes in price impact demand or supply, only ceteris paribus can be applied more generally. In the real earth, demand and supply depend on more than factors than only price. For example, a consumer's demand depends on income and a producer's supply depends on the price of producing the product. How tin we clarify the outcome on demand or supply if multiple factors are changing at the same time—say cost rises and income falls? The reply is that we examine the changes i at a time, assuming the other factors are held constant.

For example, we tin can say that an increase in the price reduces the amount consumers will buy (assuming income, and anything else that affects need, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to purchase (assuming price, and anything else that affects need, is unchanged). This is what the ceteris paribus assumption actually means. In this particular example, after we analyze each gene separately, we can combine the results. The amount consumers buy falls for two reasons: start because of the higher price and 2d considering of the lower income.

How Does Income Affect Need?

Permit's use income equally an instance of how factors other than cost affect demand. Figure i shows the initial demand for automobiles as D₀. At point Q, for case, if the price is $xx,000 per automobile, the quantity of cars demanded is 18 one thousand thousand. D₀ also shows how the quantity of cars demanded would change as a result of a higher or lower price. For instance, if the price of a car rose to $22,000, the quantity demanded would subtract to 17 meg, at bespeak R.

The original demand curve D₀, similar every demand bend, is based on the ceteris paribus supposition that no other economically relevant factors change. Now imagine that the economy expands in a mode that raises the incomes of many people, making cars more than affordable. How will this impact demand? How can we show this graphically?

Return to Figure 1. The price of cars is even so $twenty,000, but with higher incomes, the quantity demanded has now increased to twenty 1000000 cars, shown at point Due south. Every bit a result of the higher income levels, the demand bend shifts to the correct to the new demand bend D_ane, indicating an increase in demand. Tabular array iv shows clearly that this increased need would occur at every cost, not just the original 1.

Figure 1. Shifts in Demand: A Motorcar Instance. Increased need means that at every given price, the quantity demanded is higher, and so that the demand bend shifts to the right from D₀ to D₁. Decreased need means that at every given price, the quantity demanded is lower, and then that the demand curve shifts to the left from D₀ to D₂.

Price	Decrease to D2	Original Quantity Demanded D0	Increase to D1
$16,000	17.6 million	22.0 million	24.0 meg
$xviii,000	sixteen.0 million	xx.0 million	22.0 one thousand thousand
$20,000	14.4 meg	18.0 1000000	20.0 million
$22,000	thirteen.half dozen million	17.0 meg	19.0 million
$24,000	13.2 1000000	16.5 million	18.v million
$26,000	12.8 million	16.0 million	18.0 million
Table 4. Price and Need Shifts: A Car Example

Now, imagine that the economy slows down so that many people lose their jobs or work fewer hours, reducing their incomes. In this instance, the subtract in income would lead to a lower quantity of cars demanded at every given price, and the original need curve D₀ would shift left to D_two. The shift from D₀ to D₂ represents such a decrease in demand: At any given price level, the quantity demanded is now lower. In this example, a price of $20,000 means xviii million cars sold along the original need curve, but only 14.iv 1000000 sold after demand barbarous.

When a demand curve shifts, it does not mean that the quantity demanded by every private buyer changes past the same amount. In this example, not anybody would have higher or lower income and not everyone would purchase or not buy an additional machine. Instead, a shift in a demand curve captures an pattern for the market as a whole.

In the previous section, we argued that higher income causes greater need at every price. This is truthful for almost goods and services. For some—luxury cars, vacations in Europe, and fine jewelry—the effect of a ascent in income tin can be especially pronounced. A production whose need rises when income rises, and vice versa, is chosen a normal good. A few exceptions to this pattern practise exist. As incomes rising, many people will buy fewer generic make groceries and more name brand groceries. They are less likely to buy used cars and more likely to buy new cars. They will be less likely to hire an apartment and more probable to own a home, so on. A product whose demand falls when income rises, and vice versa, is called an inferior good. In other words, when income increases, the need curve shifts to the left.

Other Factors That Shift Demand Curves

Income is non the only gene that causes a shift in demand. Other things that change demand include tastes and preferences, the limerick or size of the population, the prices of related goods, and even expectations. A modify in any ane of the underlying factors that determine what quantity people are willing to purchase at a given price volition cause a shift in need. Graphically, the new need curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let's look at these factors.

Changing Tastes or Preferences

From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per twelvemonth to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per yr, according to the U.Due south. Department of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beefiness.

Changes in the Composition of the Population

The proportion of elderly citizens in the U.s. population is ascension. It rose from 9.8% in 1970 to 12.vi% in 2000, and will be a projected (by the U.Due south. Demography Bureau) 20% of the population by 2030. A society with relatively more children, like the United States in the 1960s, will have greater demand for appurtenances and services like tricycles and twenty-four hour period care facilities. A society with relatively more elderly persons, every bit the Usa is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can bear on the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve.

The demand for a product tin can besides be affected by changes in the prices of related goods such as substitutes or complements. A substitute is a good or service that tin exist used in place of another good or service. As electronic books, like this one, go more than available, you lot would expect to run into a subtract in need for traditional printed books. A lower price for a substitute decreases demand for the other production. For instance, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the law of demand). Since people are purchasing tablets, in that location has been a decrease in demand for laptops, which can be shown graphically equally a leftward shift in the demand curve for laptops. A college cost for a substitute good has the reverse result.

Other goods are complements for each other, significant that the goods are frequently used together, because consumption of i good tends to heighten consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of bacon, lettuce, tomato, mayonnaise, and bread. If the cost of golf clubs rises, since the quantity demanded of golf clubs falls (considering of the law of demand), need for a complement good like golf assurance decreases, also. Similarly, a college toll for skis would shift the demand curve for a complement good like ski resort trips to the left, while a lower cost for a complement has the reverse event.

Changes in Expectations about Time to come Prices or Other Factors that Affect Need

While it is articulate that the toll of a proficient affects the quantity demanded, it is also true that expectations near the future toll (or expectations well-nigh tastes and preferences, income, and so on) can touch on need. For example, if people hear that a hurricane is coming, they may rush to the shop to buy flashlight batteries and bottled h2o. If people acquire that the price of a good similar coffee is likely to rise in the futurity, they may head for the store to stock upward on coffee now. These changes in demand are shown as shifts in the curve. Therefore, a shift in demand happens when a change in some economical gene (other than cost) causes a different quantity to be demanded at every price. The post-obit Work It Out feature shows how this happens.

Shift in Demand

A shift in demand ways that at any price (and at every cost), the quantity demanded volition be unlike than it was earlier. Following is an example of a shift in demand due to an income increment.

Pace 1. Describe the graph of a demand curve for a normal skilful like pizza. Pick a price (like P₀). Place the respective Q₀. An example is shown in Effigy 2.

Figure 2. Demand Bend. The demand bend can exist used to identify how much consumers would purchase at any given price.

Step 2. Suppose income increases. As a upshot of the change, are consumers going to buy more or less pizza? The answer is more. Draw a dotted horizontal line from the chosen price, through the original quantity demanded, to the new point with the new Q₁. Draw a dotted vertical line down to the horizontal axis and characterization the new Q_i. An example is provided in Figure 3.

Figure 3. Demand Curve with Income Increase. With an increase in income, consumers volition purchase larger quantities, pushing need to the right.

Footstep 3. At present, shift the bend through the new bespeak. You lot will see that an increase in income causes an upward (or rightward) shift in the demand curve, and then that at any price the quantities demanded will be higher, equally shown in Figure 4.

Figure 4. Need Curve Shifted Correct. With an increment in income, consumers will buy larger quantities, pushing demand to the right, and causing the demand curve to shift right.

Summing Up Factors That Modify Need

Six factors that tin shift need curves are summarized in Effigy 5. The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a subtract in demand. Notice that a change in the price of the expert or service itself is not listed amongst the factors that can shift a demand curve. A change in the price of a expert or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, just it does non shift the demand bend.

Effigy v. Factors That Shift Demand Curves. (a) A list of factors that can cause an increase in demand from D₀ to D_i. (b) The same factors, if their direction is reversed, can crusade a decrease in demand from D₀ to D₁.

When a demand bend shifts, it will and then intersect with a given supply curve at a different equilibrium price and quantity. We are, nonetheless, getting alee of our story. Before discussing how changes in demand can affect equilibrium toll and quantity, we start need to discuss shifts in supply curves.

How Product Costs Affect Supply

A supply bend shows how quantity supplied volition alter as the toll rises and falls, assuming ceteris paribus so that no other economically relevant factors are irresolute. If other factors relevant to supply practise modify, then the unabridged supply curve will shift. Just as a shift in demand is represented by a alter in the quantity demanded at every price, a shift in supply means a change in the quantity supplied at every price.

In thinking about the factors that affect supply, recollect what motivates firms: profits, which are the difference between revenues and costs. Goods and services are produced using combinations of labor, materials, and machinery, or what we call inputs or factors of production. If a firm faces lower costs of production, while the prices for the skillful or service the business firm produces remain unchanged, a firm's profits go up. When a firm'south profits increment, it is more motivated to produce output, since the more than information technology produces the more profit it will earn. And then, when costs of production fall, a house volition tend to supply a larger quantity at any given price for its output. This can be shown past the supply curve shifting to the right.

Take, for case, a messenger visitor that delivers packages around a city. The company may detect that buying gasoline is ane of its main costs. If the price of gasoline falls, so the company will find it can deliver letters more than cheaply than before. Since lower costs correspond to college profits, the messenger company may now supply more of its services at any given cost. For example, given the lower gasoline prices, the company can at present serve a greater surface area, and increment its supply.

Conversely, if a house faces higher costs of product, then it will earn lower profits at whatsoever given selling price for its products. As a consequence, a higher cost of production typically causes a firm to supply a smaller quantity at whatsoever given price. In this example, the supply curve shifts to the left.

Consider the supply for cars, shown by curve South₀ in Figure 6. Point J indicates that if the price is $20,000, the quantity supplied volition be 18 million cars. If the cost rises to $22,000 per machine, ceteris paribus, the quantity supplied will ascension to xx million cars, as point K on the S₀ bend shows. The same data can exist shown in table form, as in Table 5.

Figure half dozen. Shifts in Supply: A Car Example. Decreased supply means that at every given price, the quantity supplied is lower, so that the supply curve shifts to the left, from S₀ to S₁. Increased supply means that at every given price, the quantity supplied is higher, so that the supply bend shifts to the right, from S₀ to Due south₂.

Price	Subtract to Sone	Original Quantity Supplied S0	Increase to S2
$16,000	10.5 meg	12.0 million	13.2 meg
$xviii,000	13.v million	15.0 million	16.5 1000000
$20,000	16.v meg	eighteen.0 million	19.8 million
$22,000	xviii.v million	xx.0 meg	22.0 meg
$24,000	nineteen.v million	21.0 one thousand thousand	23.i million
$26,000	twenty.5 million	22.0 1000000	24.2 meg
Table 5. Price and Shifts in Supply: A Car Instance

Now, imagine that the price of steel, an of import ingredient in manufacturing cars, rises, so that producing a car has become more expensive. At any given price for selling cars, auto manufacturers will react by supplying a lower quantity. This can be shown graphically equally a leftward shift of supply, from Southward₀ to S₁, which indicates that at any given price, the quantity supplied decreases. In this example, at a price of $20,000, the quantity supplied decreases from eighteen meg on the original supply bend (S₀) to 16.five million on the supply bend Southward₁, which is labeled as point Fifty.

Conversely, if the toll of steel decreases, producing a car becomes less expensive. At any given price for selling cars, car manufacturers can now expect to earn college profits, then they will supply a college quantity. The shift of supply to the right, from S₀ to S₂, means that at all prices, the quantity supplied has increased. In this example, at a price of $twenty,000, the quantity supplied increases from xviii one thousand thousand on the original supply curve (Southward₀) to nineteen.8 meg on the supply bend S₂, which is labeled Chiliad.

Other Factors That Affect Supply

In the example higher up, nosotros saw that changes in the prices of inputs in the production procedure will touch the toll of production and thus the supply. Several other things affect the price of production, as well, such as changes in weather or other natural conditions, new technologies for production, and some government policies.

The toll of production for many agronomical products will exist affected by changes in natural weather condition. For example, in 2014 the Manchurian Obviously in Northeastern Cathay, which produces virtually of the country'southward wheat, corn, and soybeans, experienced its most severe drought in l years. A drought decreases the supply of agronomical products, which means that at any given toll, a lower quantity will be supplied; conversely, especially good weather would shift the supply curve to the correct.

When a house discovers a new technology that allows the firm to produce at a lower toll, the supply curve will shift to the right, as well. For case, in the 1960s a major scientific effort nicknamed the Green Revolution focused on breeding improved seeds for basic crops similar wheat and rice. By the early 1990s, more than two-thirds of the wheat and rice in depression-income countries around the world was grown with these Light-green Revolution seeds—and the harvest was twice as loftier per acre. A technological improvement that reduces costs of product will shift supply to the right, so that a greater quantity will be produced at any given cost.

Government policies can bear upon the cost of product and the supply curve through taxes, regulations, and subsidies. For instance, the U.S. authorities imposes a tax on alcoholic beverages that collects nigh $8 billion per year from producers. Taxes are treated as costs past businesses. Higher costs decrease supply for the reasons discussed above. Other examples of policy that can touch toll are the wide assortment of government regulations that require firms to spend money to provide a cleaner surroundings or a safer workplace; complying with regulations increases costs.

A authorities subsidy, on the other mitt, is the opposite of a tax. A subsidy occurs when the government pays a firm directly or reduces the firm'south taxes if the firm carries out certain actions. From the firm's perspective, taxes or regulations are an boosted cost of production that shifts supply to the left, leading the firm to produce a lower quantity at every given cost. Government subsidies reduce the cost of production and increase supply at every given price, shifting supply to the correct. The following Work It Out feature shows how this shift happens.

Shift in Supply

Nosotros know that a supply bend shows the minimum price a firm volition accept to produce a given quantity of output. What happens to the supply curve when the cost of product goes up? Following is an example of a shift in supply due to a production cost increase.

Step 1. Depict a graph of a supply bend for pizza. Pick a quantity (similar Q₀). If y'all draw a vertical line up from Q₀ to the supply curve, you volition see the price the firm chooses. An case is shown in Figure vii.

Figure 7. Supply Curve. The supply curve can be used to show the minimum price a firm will accept to produce a given quantity of output.

Footstep 2. Why did the firm choose that toll and non some other? One way to call back about this is that the price is composed of 2 parts. The first office is the boilerplate cost of production, in this case, the cost of the pizza ingredients (dough, sauce, cheese, pepperoni, and and then on), the cost of the pizza oven, the hire on the store, and the wages of the workers. The second part is the house'due south desired profit, which is determined, amongst other factors, by the profit margins in that particular business. If you add these two parts together, yous get the price the firm wishes to charge. The quantity Q0 and associated price P0 give you 1 indicate on the house'southward supply curve, equally shown in Figure 8.

Effigy 8. Setting Prices. The price of production and the desired profit equal the price a firm will prepare for a product.

Step 3. Now, suppose that the cost of production goes up. Possibly cheese has get more expensive by $0.75 per pizza. If that is truthful, the firm will want to enhance its cost by the corporeality of the increment in cost ($0.75). Depict this point on the supply curve directly above the initial betoken on the curve, but $0.75 higher, equally shown in Figure 9.

Effigy 9. Increasing Costs Leads to Increasing Toll. Because the toll of product and the desired profit equal the price a firm will set up for a product, if the toll of production increases, the price for the product will also need to increment.

Step iv. Shift the supply curve through this point. You will come across that an increase in price causes an upward (or a leftward) shift of the supply curve so that at any cost, the quantities supplied volition be smaller, every bit shown in Figure x.

Figure 10. Supply Curve Shifts. When the cost of production increases, the supply bend shifts upwardly to a new price level.

Summing Upwardly Factors That Change Supply

Changes in the cost of inputs, natural disasters, new technologies, and the bear on of government decisions all affect the cost of production. In plow, these factors affect how much firms are willing to supply at any given price.

Effigy 11 summarizes factors that alter the supply of goods and services. Notice that a change in the price of the product itself is not amongst the factors that shift the supply curve. Although a change in price of a skilful or service typically causes a change in quantity supplied or a movement along the supply curve for that specific proficient or service, it does non cause the supply bend itself to shift.

Figure xi. Factors That Shift Supply Curves. (a) A list of factors that tin cause an increase in supply from Due south₀ to Due south₁. (b) The same factors, if their direction is reversed, can cause a decrease in supply from Due south₀ to South₁.

Because need and supply curves appear on a ii-dimensional diagram with only price and quantity on the axes, an unwary visitor to the land of economics might be fooled into assertive that economics is almost only iv topics: demand, supply, price, and quantity. Withal, demand and supply are really "umbrella" concepts: demand covers all the factors that affect demand, and supply covers all the factors that touch on supply. Factors other than toll that bear upon demand and supply are included by using shifts in the demand or the supply curve. In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a wide range of economical circumstances.

Key Concepts and Summary

Economists often use the ceteris paribus or "other things beingness equal" assumption: while examining the economic bear upon of ane event, all other factors remain unchanged for the purpose of the analysis. Factors that can shift the need curve for appurtenances and services, causing a different quantity to be demanded at whatever given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future weather condition and prices. Factors that can shift the supply bend for goods and services, causing a unlike quantity to exist supplied at whatever given price, include input prices, natural conditions, changes in technology, and authorities taxes, regulations, or subsidies.

Self-Check Questions

1. Why do economists use the ceteris paribus assumption?
2. In an analysis of the market for paint, an economist discovers the facts listed below. Country whether each of these changes will affect supply or demand, and in what direction.
   1. There have recently been some important cost-saving inventions in the engineering for making paint.
   2. Paint is lasting longer, so that belongings owners need not repaint as often.
   3. Because of severe hailstorms, many people demand to repaint now.
   4. The hailstorms damaged several factories that make paint, forcing them to close down for several months.
3. Many changes are affecting the market for oil. Predict how each of the following events volition affect the equilibrium price and quantity in the market for oil. In each case, state how the result will touch the supply and demand diagram. Create a sketch of the diagram if necessary.
   1. Cars are becoming more than fuel efficient, and therefore get more miles to the gallon.
   2. The winter is exceptionally cold.
   3. A major discovery of new oil is made off the declension of Norway.
   4. The economies of some major oil-using nations, similar Nippon, slow downward.
   5. A war in the Center E disrupts oil-pumping schedules.
   6. Landlords install additional insulation in buildings.
   7. The price of solar energy falls dramatically.
   8. Chemic companies invent a new, popular kind of plastic made from oil.

Review Questions

1. When analyzing a market, how do economists deal with the problem that many factors that affect the marketplace are changing at the aforementioned fourth dimension?
2. Proper noun some factors that can cause a shift in the need bend in markets for appurtenances and services.
3. Name some factors that can cause a shift in the supply curve in markets for appurtenances and services.

Critical Thinking Questions

1. Consider the demand for hamburgers. If the toll of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can y'all tell for certain what volition happen to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.
2. How do you suppose the demographics of an aging population of "Baby Boomers" in the United States will affect the demand for milk? Justify your answer.
3. Nosotros know that a change in the price of a product causes a movement along the need curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you lot show this graphically?
4. Suppose there is soda tax to adjourn obesity. What should a reduction in the soda taxation exercise to the supply of sodas and to the equilibrium price and quantity? Tin can yous show this graphically? Hint: assume that the soda taxation is nerveless from the sellers

Problems

1. Table six shows information on the need and supply for bicycles, where the quantities of bicycles are measured in thousands.
   

   Price	Qd	Qs
   $120	l	36
   $150	40	40
   $180	32	48
   $210	28	56
   $240	24	lxx
   Table vi. Demand and Supply for Bicycles

   1. What is the quantity demanded and the quantity supplied at a cost of $210?
   2. At what toll is the quantity supplied equal to 48,000?
   3. Graph the demand and supply curve for bicycles. How tin yous determine the equilibrium price and quantity from the graph? How tin can you determine the equilibrium price and quantity from the tabular array? What are the equilibrium price and equilibrium quantity?
   4. If the price was $120, what would the quantities demanded and supplied exist? Would a shortage or surplus exist? If so, how large would the shortage or surplus exist?
2. The computer market in contempo years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this upshot? Sketch a demand and supply diagram and explain your reasoning for each.
   1. A rise in demand
   2. A autumn in demand
   3. A rising in supply
   4. A autumn in supply

References

Landsburg, Steven E. The Armchair Economist: Economic science and Everyday Life. New York: The Free Press. 2012. specifically Section Four: How Markets Work.

National Chicken Council. 2015. "Per Capita Consumption of Poultry and Livestock, 1965 to Estimated 2015, in Pounds." Accessed April 13, 2015. http://world wide web.nationalchickencouncil.org/most-the-industry/statistics/per-capita-consumption-of-poultry-and-livestock-1965-to-estimated-2012-in-pounds/.

Wessel, David. "Saudi Arabia Fears $40-a-Barrel Oil, Also." The Wall Street Journal. May 27, 2004, p. 42. http://online.wsj.com/news/articles/SB108561000087822300.

Glossary

ceteris paribus

other things beingness equal

complements

goods that are oftentimes used together and so that consumption of 1 expert tends to enhance consumption of the other

factors of production

the combination of labor, materials, and machinery that is used to produce goods and services; also called inputs

inferior good

a skilful in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

inputs

the combination of labor, materials, and mechanism that is used to produce goods and services; likewise called factors of production

normal good

a good in which the quantity demanded rises as income rises, and in which quantity demanded falls every bit income falls

shift in need

when a change in some economic factor (other than cost) causes a different quantity to be demanded at every price

shift in supply

when a change in some economic cistron (other than price) causes a dissimilar quantity to be supplied at every price

substitute

a proficient that tin supplant another to some extent, and then that greater consumption of one good can mean less of the other

Solutions

Answers to Cocky-Check Questions

1. To make it easier to analyze complex problems. Ceteris paribus allows y'all to look at the effect of one factor at a time on what it is you are trying to clarify. When yous have analyzed all the factors individually, you add the results together to go the final reply.
2. 1. An improvement in technology that reduces the cost of product will cause an increase in supply. Alternatively, you lot can retrieve of this every bit a reduction in toll necessary for firms to supply any quantity. Either way, this can be shown as a rightward (or downwards) shift in the supply bend.
   2. An comeback in product quality is treated as an increment in tastes or preferences, pregnant consumers demand more paint at any price level, so demand increases or shifts to the right. If this seems counterintuitive, note that demand in the future for the longer-lasting paint will fall, since consumers are essentially shifting demand from the future to the present.
   3. An increment in need causes an increment in need or a rightward shift in the demand curve.
   4. Factory impairment means that firms are unable to supply equally much in the present. Technically, this is an increase in the price of product. Either way y'all await at information technology, the supply curve shifts to the left.
3. 1. More fuel-efficient cars means there is less need for gasoline. This causes a leftward shift in the need for gasoline and thus oil. Since the need bend is shifting down the supply curve, the equilibrium price and quantity both fall.
   2. Common cold atmospheric condition increases the need for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the need curve is shifting up the supply curve, the equilibrium cost and quantity both ascent.
   3. A discovery of new oil will make oil more arable. This can exist shown as a rightward shift in the supply curve, which will crusade a decrease in the equilibrium price along with an increment in the equilibrium quantity. (The supply curve shifts downward the demand curve then toll and quantity follow the law of demand. If price goes down, and so the quantity goes up.)
   4. When an economy slows downwards, it produces less output and demands less input, including energy, which is used in the product of near everything. A decrease in demand for energy will be reflected as a decrease in the demand for oil, or a leftward shift in demand for oil. Since the need curve is shifting down the supply curve, both the equilibrium price and quantity of oil will fall.
   5. Disruption of oil pumping will reduce the supply of oil. This leftward shift in the supply bend will show a motion upward the need curve, resulting in an increase in the equilibrium cost of oil and a decrease in the equilibrium quantity.
   6. Increased insulation volition subtract the demand for heating. This leftward shift in the demand for oil causes a motion downward the supply curve, resulting in a subtract in the equilibrium price and quantity of oil.
   7. Solar free energy is a substitute for oil-based energy. So if solar free energy becomes cheaper, the demand for oil volition subtract as consumers switch from oil to solar. The decrease in demand for oil volition be shown equally a leftward shift in the demand bend. As the demand curve shifts downwardly the supply curve, both equilibrium price and quantity for oil will fall.
   8. A new, popular kind of plastic will increase the need for oil. The increase in need will exist shown as a rightward shift in need, raising the equilibrium price and quantity of oil.

What Two Conditions Must Buyers Meet In Order For There To Be Demand For A Good Or Service,

Source: https://opentextbc.ca/principlesofeconomics/chapter/3-2-shifts-in-demand-and-supply-for-goods-and-services/

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