Determinants of Supply and Demand

What are the 6 determinants of Demand?

1. Consumer Tastes (Fads, Popularity, Better product found. All can shift demand curve)
2. Market size and Number of consumers
3. Consumer income (Higher income will increase the demand for normal goods. Lower-income will increase demand for inferior goods (knockoff-name brand)
4. Substitutes
5. Complements (tooth and toothbrush)
6. Consumer Expectations (Expectations for the future can influence demand curve now)

 

What way does a demand curve slope?

Downwards (\\)

What way does a supply curve slope?

Upwards (/)

Which way does the curve move when there is an increase in demand?

Shift to the right or up

Which way does the curve move when there is a decrease in demand?

Shift to the left or down

Which way does the curve move when there is a increase in supply?

Shift to the right or up

Which way does the curve move when there is a decrease in supply?

Shift to the left or down

What are the determinants of supply?

1. Price of resources (Raw materials, Electricity, Worker wages) (If resources cost more, supply decreases)


2. Government tools (Higher taxes = decrease in supply, Lower taxes = increase in supply, Regulation increase = decrease in supply) (Subsidies and regulation)


3. Technology (New technology make production more efficient, supply goes up, ex: Henry Ford)


4. Competition (More suppliers enter a market, then supply goes up. Ex: Xbox vs PS4)


5. Prices of related goods (Drop in related good price means a rise in supply for higher priced goods. EX: Wheat and Corn)


6. Producer Expectations (Prices will rise in the future, supply goes down now) (Prices will drop in the future, supply no rises)

What does a decrease in subsidies, taxes, and/or regulations mean?

An increase in supply

What does an increase in subsidies, taxes, and/or regulations mean?

A decrease in supply

If the prices of resources increases, what happens to supply?

Supply deceases

What happens to supply if new technology makes production more efficient?

Supply increases

What happens to supply when more suppliers enter a market (competition)?

Supply increases

What happens to supply when there is a drop of price in related goods?

Supply increases

What happens to supply when there is an expected price increase in the future?

Supply goes down now

What happens to supply when there is an expected price decrease in the future?

Supply goes up now

How does consumer income effect demand?

Higher income will increase the demand for normal goods (name brand). Lower income will increase demand for inferior goods (knockoff)