Demand/Demand Shifters and Supply/Supply Shifters

Markets

A collection of buyers and sellers of a particular good or service

Competitive Market

in which there are so many buyers and sellers, each only has a small impact on price and output

Perfectly Competitive Markets

All goods are offered the exact same

There are so many buyers and sellers that the actions of no individual have an impact on the market price (price takers)

Quantity Demanded

The amount of that good or service that buyers are willing and able to purchase

Depends on the price

Law of Demand

All else equal, quantity demanded falls when the price of a good or service rises, and rises when the price falls. People are willing and able to purchase more when the good is cheaper.

Demand Schedule

A table that shows the relationship between the price of a good or service, and the quantity demanded

Demand Curve

A graph of the relationship between prices and quantities demanded at those prices (for individuals or the whole market)

Movement along the demand curve

Occurs when there is a change in quantity demanded due to price

Shifts along the demand curve

Occurs when there is a change in quantity demanded at every price due to a change in something other than the price

Leftward shifts along the demand curve

when the quantity demanded decreases for every given price

Rightward shifts along the demand curve

When the quantity demanded increases for every given price

Demand Shifters

Income

Prices of Related Goods

Changes in Tastes and Preferences

Expectations

Number of Buyers

Normal Good

demand for a good shifts left when income falls, and shifts right when income rises

ex. fancy steak dinner, new car

Inferior Good

demand for a good shifts right when income falls, and shifts left when income rises

ex. packaged ramen noodles, bicycle

Complements

Goods that are used together

Demand shifts to the left when the price of a complement rises and shifts right when the price of a complement falls

ex. peanut butter and jelly

Substitutes

Goods that are used in place of each other

Demand shifts left when the price of a substitute falls, and shifts right when the price of a substitute rises

ex. Coke and Pepsi, Verizon and AT&T

Expectations causing Shifts in the demand curve

Includes expectations about future prices or your future income

ex. If gallon gas is going to be several dollars cheaper next week, buyers may hold off filling up their tanks until next week. This shifts today’s demand left.

Changes in Tastes and Preferences causing Shifts in the demand curve

Crocs went out of style in the late 2000s and early 2010s. Demand shifted to the left. In 2020, Crocs became popular again, and demand shifted right.

Number of Buyers causing Shifts in the demand curve

Market demand depends on the number of buyers in the market. If the number of buyers increases, the demand shifts right. If the number decreases, demand shifts left.

Quantity Supplied

the amount of a good or service that sellers/producers/suppliers are willing and able to sell

Depends on price

Law of Supply

all else equal, quantity supplied falls when the price of a good or service falls, and rises when the price rises. Sellers are willing and able to sell more when the good is more expensive. They want to not only cover their costs, but also make a profit

Supply Schedule

the relationship between the price of a good or service, and the quantity supplied

Supply Curve

the graph of the relationship between prices and quantities supplied at those prices (individuals or the whole market)

Movement along the supply curve

occurs when there is a change in quantity supplied due to a change in price

Shifts in the supply curve

occurs when there is a change in quantity supplied at every price (due to a change in something other than the price)

Leftward shifts in the supply curve

occurs when the quantity supplied decreases for every given price

Rightward shifts in the supply curve

occurs when the quantity supplied increases for every given price

Factors that shift the supply curve

Input

Technology

Expectations

Number of sellers

Input

used to create the final product or service

If the inputs change, this affects the final cost of the product or service, which affects the quantity that sellers are willing and able to supply at a given price

Technology shifting the supply curve

Availability of technological advancements affects the supply of goods and services

ex. A new fertilizer is invented. This fertilizer doubles the growth of speed of potatoes. This shifts the supply to the right.

Expectations shifting the supply curve

Expectations about the future may shift supply for a good or service today.

ex. If gas prices are going to increase next week, sellers may hold off on supplying some of their gas this week to wait for the higher prices

Number of sellers shifting the supply curve

Market supply depends on the number of sellers in the market. If the number of sellers increase, supply shifts to the right. If the number decreases, supply shifts left.

ex. Starbucks in Cookeville, TN shuts down. This decreases the supply of coffee in Tennessee

Movement or Shift in the Demand Curve: The price of air mattresses (a substitute) decreases

Shift Left

Movement or Shift in the Demand Curve: The price of memory foam mattresses decreases

Movement

Movement or Shift in the Demand Curve: The price of blankets (a complement) decreases

Shift Right

Movement or Shift in the Demand Curve: A new study is published showing that memory foam mattresses increase risk of death

Shift Left

Direction of Demand Shifts: Apple lowers the price for AirPods, which can be used instead of Beats by Dre (demand for Beats)

Shift Left

Direction of Demand Shifts: The price of baking soda, which can be used instead of baking powder, increases (demand for baking powder)

Shift Right

Direction of Demand Shifts: Income increases (demand for RC Cola- an inferior good)

Shift Left

Direction of Demand Shifts: Nike releases new, extended sizing options for all shoes (demand for shoes)

Shift Right

Direction of Demand Shifts: Vogue’s latest issue deems flannel “uncool” (demand for flannel shirts)

Shift Left

Movement or Shift in the Demand Curve: The price of chips (a complement) increases

Shift Left

Movement or Shift in the Demand Curve: The price of sandwiches will decrease next weekend

Shift Left

Movement or Shift in the Demand Curve: People lose their taste for sandwiches

Shift Left

Movement or Shift in the Demand Curve: Income increases

Shift Right (for a normal good) OR shift left (for an inferior good)

Direction of Demand Shifts: Income increases (demand for landscaping service- a normal good)

Shift Right

Direction of Demand Shifts: The price of houses, which often need new carpet, decreases (demand for new carpet)

Shift Right

Direction of Demand Shifts: The population of Cookeville, TN increases (demand for local cuisine)

Shift Right

Direction of Demand Shifts: A viral trend shows people dying their hair rainbow colors (demand for hair dye)

Shift Right

Direction of Demand Shifts: The price of fishing poles is expected to increase next week (demand for fishing poles)

Shift Right

Direction of Demand Shifts: Income decreases (demand for electric vehicles-a normal good)

Shift Left

Movement or Shift in the Supply Curve: The price of brass- an input into the production of keys- decreases

Shift Right

Movement or Shift in the Supply Curve: A technological innovations makes cutting teeth into keys easier

Shift Right

Movement or Shift in the Supply Curve: The price of keys is expected to increase next week

Shift Left

Movement or Shift in the Supply Curve: The price of keys is expected to decrease next week

Shift Right

Direction of Supply Shifts: The price of champagne will decrease next month (supply champagne)

Shift Right

Direction of Supply Shifts: The price of leather, used to make sneakers, decreases (supply of sneakers)

Shift Right

Direction of Supply Shifts: A new cohort of kids turn 14, and all are now eligible to get permits to work as babysitters (supply of babysitting service)

Shift Right

Direction of Supply Shifts:The price of fried chicken will increase next month (supply of fried chicken)

Shift Left

Direction of Supply Shifts: A new, more efficient piping tip for icing is released (supply of wedding cakes)

Shift Right

Market for Healthcare service- movement or shift: The price of medical equipment increases

Shift Left

Movement or Shift of the supply curve: A new hospital opens in the area

Shift RIght

Movement or Shift of the supply curve: The price of healthcare decreases

Movement

Movement or Shift of the supply curve: The minimum wage increases

Shift Left

Direction of Supply Shifts: The price of constructions materials, which are used to build houses, increases (supply of houses)

Shift Left

Movement or Shift of the supply curve: Income increases (supply of desks- a normal good)

None

Movement or Shift of the supply curve: Pop-up Halloween stores close after October 31st (supply of Halloween costumes)

Shift Left

Movement or Shift of the supply curve: A technological advancement makes producing bracelets more efficient (supply of bracelets)

Shift Right

Movement or Shift of the supply curve: The price of pigments (used to dye printer ink) decreases (supply of printer ink)

Shift right