Economics » Demand and Supply » Shifts in Demand and Supply for Goods and Services

Key Concepts and Summary

Key Concepts and Summary

Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for the purpose of the analysis. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies.

Glossary

ceteris paribus

other things being equal

complements

goods that are often used together so that consumption of one good 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 good 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 machinery that is used to produce goods and services; also called factors of production

normal good

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

shift in demand

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

shift in supply

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

substitute

a good that can replace another to some extent, so that greater consumption of one good can mean less of the other

Problems

1. The table below shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.

PriceQdQs
$1205036
$1504040
$1803248
$2102856
$2402470
  1. What is the quantity demanded and the quantity supplied at a price of $210?
  2. At what price is the quantity supplied equal to 48,000?
  3. Graph the demand and supply curve for bicycles. How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the table? What are the equilibrium price and equilibrium quantity?
  4. If the price was $120, what would the quantities demanded and supplied be? Would a shortage or surplus exist? If so, how large would the shortage or surplus be?

2. The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram and explain your reasoning for each.

  1. A rise in demand
  2. A fall in demand
  3. A rise in supply
  4. A fall in supply

Critical Thinking Questions

  1. Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will 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. We know that a change in the price of a product causes a movement along the demand 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 show this graphically?
  4. Suppose there is soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: assume that the soda tax is collected from the sellers.

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