Shifts 

Shifting Demand and Supply Curves

• The result of lower costs is a lower cost and an increase in quantity
  • When costs have fallen suppliers are willing to sell more at the old price than demanders are willing to buy
• Competition between sellers pushes prices down, and as prices fall, the quantity demanded increases
  • Ex: as technological innovation reduce the price of computer chips, prices fall and the quantity of chips used in everything increases
• A decrease in supply will raise the market price and reduce the market quantity

Terminology-Demand Compared with Quantity Demanded and Supply Compared with Quantity Supplied

• Increase in quantity demanded is a movement along a fixed demand curve
• An increase in demand is a shift of the entire demand curve (up and to the right)
• Increase in supply is a shift of the entire supply curve
• Increase in quantity supplied is a movement along a fixed supply curve
• Simple rule of thumb: what changes the equilibrium price and quantity are shifts in demand and supply

Does Vernon’s Model Work for Supply and Demand?

• Vernon smith tested supply and demand model in lab
• He used students to test
• His model came out to be true