Shifts of Demand and Supply

CRAM!

Price of input (S)

Input - any good or service used in production

As input price of a good increases, supply decreases. (i.e: More costly to produce)

As input prices of a good decreases, supply increases.

Substitute/Complements in production (S)

• Two goods are substitutes in production if an increase in the price of one good leads to a decrease in the supply of the other (e.g: tea and coffee)

• Two goods are complements in production if an increase in the price of one good leads to an increase in the supply of the other (e.g: cereal and milk)

Technology (S)

Improvement in technology can make production more efficient.

→ Increase in supply

Future expectation (S)

• If producers expect the price of a good to decrease in the future, supply will increase in the short run

• If producers expect the price of a good to increase in the future, supply will decrease in the short run

Change in producers (S)

As the number of producers increase, supply increases and becomes flatter.

Change in price of related good (D)

Complements and substitutes

Change in consumer income (D)

When consumer income increase, so does the demand. (For most goods) i.e: Cars

When consumer income increases, demand decreases (Inferior goods) - Ramen

Change in taste preferences (D)

i.e: Trendy product shifts demand curve rightward as people want to buy it.

Change in future expectations (D)

Change in number of consumers (D)

i.e: Increase in consumers increases demand