Determinants of Supply & Demand

What You Need to Know

Supply and demand determinants are the non-price factors that shift the entire demand curve or supply curve. AP Micro loves testing whether you can:

• Distinguish a shift (change in demand/supply) from a movement along the curve (change in quantity demanded/supplied).
• Predict the direction of curve shifts.
• Translate shifts into equilibrium price $P^*$ and **equilibrium quantity** $Q^*$ changes.

The core rule (the exam’s favorite)

• Price of the good itself changes ⟶ movement along the curve:
  • Demand: price changes ⟶ change in quantity demanded
  • Supply: price changes ⟶ change in quantity supplied
• Anything else changes ⟶ shift the curve:
  • Change in demand (demand curve shifts)
  • Change in supply (supply curve shifts)

Critical reminder: “Demand” vs “quantity demanded” and “supply” vs “quantity supplied” is the #1 wording trap. If the good’s own $P$ changes, you do not say demand/supply changed.

What a “shift” means

• Demand increases ⟶ demand curve shifts right ⟶ at every $P$, consumers want more.
• Demand decreases ⟶ demand curve shifts left.
• Supply increases ⟶ supply curve shifts right ⟶ at every $P$, producers offer more.
• Supply decreases ⟶ supply curve shifts left.

Why it matters

Most equilibrium questions are just: identify the determinant(s) ⟶ shift curve(s) ⟶ read new $P^*$ and $Q^*$. Even “story problems” reduce to this.

Step-by-Step Breakdown

Use this every time you see a scenario.

Step 1: Identify what changed

Ask: Did the good’s own price change?

• If yes ⟶ movement along the curve (quantity demanded/supplied changes).
• If no ⟶ a determinant changed ⟶ curve shifts.

Step 2: Decide whether it affects demand or supply

• Consumer-side factors ⟶ demand (tastes, income, related goods, expectations, buyers).
• Producer-side factors ⟶ supply (inputs, tech, taxes/subsidies, regulations, expectations, sellers, nature/production conditions).

Step 3: Determine direction of the shift

Translate the story into: “At the same price, do they want to buy/sell more or less?”

• More at every $P$ ⟶ shift right
• Less at every $P$ ⟶ shift left

Step 4: Convert shift(s) into $P^*$ and $Q^*$ changes

Use the standard outcomes:

• Demand ↑ ⟶ $P^*$ ↑, $Q^*$ ↑
• Demand ↓ ⟶ $P^*$ ↓, $Q^*$ ↓
• Supply ↑ ⟶ $P^*$ ↓, $Q^*$ ↑
• Supply ↓ ⟶ $P^*$ ↑, $Q^*$ ↓

Step 5 (harder): If both curves shift, handle it cleanly

• If both shift, quantity or price can be ambiguous unless shifts push it the same way.
• Do two quick checks:
  1. Which direction does each shift push $P^*$?
  2. Which direction does each shift push $Q^*$?

Worked micro-example (two shifts):

• Event: “Income rises for a normal good” ⟶ demand ↑.
• Event: “Input costs rise” ⟶ supply ↓.
• Result:
  • $P^*$: demand ↑ pushes $P^*$ up; supply ↓ pushes $P^*$ up ⟶ $P^*$ definitely increases.
  • $Q^*$: demand ↑ pushes $Q^*$ up; supply ↓ pushes $Q^*$ down ⟶ $Q^*$ ambiguous.

On AP questions, when one of $P^*$ or $Q^*$ is ambiguous, the correct answer choice often says “cannot be determined.”

Key Formulas, Rules & Facts

Demand vs. Supply basics (quick definitions)

• Demand: relationship between $P$ and quantity consumers are willing/able to buy, ceteris paribus.
• Supply: relationship between $P$ and quantity producers are willing/able to sell, ceteris paribus.

Algebra view (helps when they give equations)

Determinants of Demand (shifters)

Think: what changes consumers’ willingness/ability to buy at every $P$?

Determinants of Supply (shifters)

Think: what changes producers’ costs or incentives to sell at every $P$?

Equilibrium change cheat table (single shift)

Examples & Applications

Example 1: Income increase (normal vs inferior)

Scenario: “Household incomes rise. Good X is a normal good.”

• Determinant: income
• Normal good ⟶ demand increases (shift right)
• New equilibrium: $P^*$ ↑ and $Q^*$ ↑

Variation they like: If they say “instant ramen (inferior good) and income rises” ⟶ demand decreases (shift left) ⟶ $P^*$ ↓, $Q^*$ ↓.

Example 2: Related goods (substitute vs complement)

Scenario: “The price of coffee rises. What happens to demand for tea?”

• Tea is a substitute for coffee (many consumers switch)
• Substitute price ↑ ⟶ demand for tea increases
• Equilibrium for tea: $P^*$ ↑, $Q^*$ ↑

Complement version: “Price of smartphones rises; what happens to demand for smartphone cases?”

• Cases are complements.
• Complement price ↑ ⟶ demand for cases decreases ⟶ $P^*$ ↓, $Q^*$ ↓.

Example 3: Producer cost shock (input prices)

Scenario: “A drought raises the cost of wheat used to make bread.”

• Determinant: input prices (wheat cost ↑)
• Supply of bread decreases (shift left)
• New equilibrium: $P^*$ ↑ and $Q^*$ ↓

Exam twist: The drought is a “natural shock,” but the mechanism is still higher costs/lower productivity ⟶ supply left.

Example 4: Two shifts and ambiguity

Scenario: “A new study says eggs are healthy (tastes ↑), but a new regulation increases costs for egg producers (regulation ↑).”

• Demand: tastes ↑ ⟶ demand ↑
• Supply: regulation ↑ costs ⟶ supply ↓
• Equilibrium:
  • $P^*$: up (both push up) ⟶ definitely increases
  • $Q^*$: demand ↑ pushes up, supply ↓ pushes down ⟶ ambiguous

If the question asks only about $P^*$, you can answer confidently: $P^*$ rises.

Common Mistakes & Traps

1. Mixing up “demand” with “quantity demanded”

   • Wrong: “Price rises, so demand falls.”
   • Why wrong: A price change causes a movement along the demand curve.
   • Fix: Say quantity demanded decreases when $P$ rises.

2. Shifting demand because of the good’s own price

   • Wrong: Drawing the demand curve shifting left when $P$ increases.
   • Why wrong: The curve already captures the $P$–quantity relationship.
   • Fix: Only shift demand for non-price determinants.

3. Confusing substitutes and complements

   • Wrong: “Coffee price rises, so demand for tea falls.”
   • Why wrong: For substitutes, the cross relationship is positive: one price up ⟶ demand for the other up.
   • Fix: Ask: “Do people switch toward the other good (substitute) or buy less together (complement)?”

4. Forgetting normal vs inferior goods for income changes

   • Wrong: Assuming income ↑ always shifts demand right.
   • Why wrong: Inferior goods shift left when income ↑.
   • Fix: Memorize: Normal: income ↑ ⟶ demand ↑; Inferior: income ↑ ⟶ demand ↓.

5. Mixing up change in supply with change in quantity supplied

   • Wrong: “Higher price makes supply increase (shift right).”
   • Why wrong: Higher $P$ increases quantity supplied, a movement along supply.
   • Fix: Supply shifts come from costs, tech, taxes/subsidies, regulations, sellers, expectations, etc.

6. Getting producer expectations backward

   • Wrong: “If firms expect higher future prices, supply increases today.”
   • Why wrong: Firms may hold back inventory to sell later ⟶ supply decreases today.
   • Fix: Future price expected ↑ ⟶ current supply ↓ (for storable goods).

7. Thinking ‘more sellers’ affects demand

   • Wrong: Treating new firms entering as demand ↑.
   • Why wrong: Sellers affect supply.
   • Fix: Buyers ⟶ demand; sellers ⟶ supply.

8. Not recognizing ambiguity with two shifts

   • Wrong: Picking an answer that gives definite changes for both $P^*$ and $Q^*$ when shifts oppose.
   • Why wrong: When one curve shifts right and the other shifts left, one of $P^*$ or $Q^*$ is often indeterminate.
   • Fix: Use the “push” method: each shift pushes $P^*$ and $Q^*$ in a direction; if pushes conflict, it’s ambiguous.

Memory Aids & Quick Tricks

These mnemonics aren’t “official,” but they’re consistent with the standard AP Micro determinant list.

Quick Review Checklist

• You only say demand/supply changes when a determinant changes (not the good’s own $P$).
• Demand determinants: tastes, income (normal vs inferior), related goods (substitutes/complements), expectations, # of buyers.
• Supply determinants: input costs, technology, taxes/subsidies, regulation, expectations, # of sellers, natural conditions, alternative outputs.
• Shift directions:
  • Demand ↑ ⟶ $P^*$ ↑, $Q^*$ ↑
  • Supply ↑ ⟶ $P^*$ ↓, $Q^*$ ↑
• For two shifts, decide which outcome is definite and which is ambiguous.
• Always label answers as “demand” vs “quantity demanded” and “supply” vs “quantity supplied.”

You’ve got this—if you can classify the determinant and draw/describe the shift, the equilibrium question basically answers itself.