Demand and Supply Shifters

1. Demand and Supply Shifters

2. Let's Take A Look At The Five Demand Shifters ["TIMER"]

3. Warning Concentration on these slides is guaranted to improve your economics grade.

4. 1."Change in Taste" [Direct] D2 D1 P QD1 QD2

5. 2. Change in Income [Normal-Direct; Inferior-Inverse] Used Cars New Cars D2 D1 Less income results in more demand for used cars; less demand for new cars. More income results in more demand for new cars; less demand for used cars. P QD1 QD2

6. 3. Change in Market Size [Direct] [Number of Consumers] This is what we told 1 billion Chinese, as new potential consumers, when we opened trade relations with them in the 70s. D2 D1 New Cars P More demand for both new and used cars Used Cars QD1 QD2

7. 4. Expectations [of consumers] [about future price, availibility, & income] If Steve Jobs responds to iRate customers who bought the iPhone at $599 and says, “iSorry, we will raise the price back to $599 in 3 weeks.” $399 D2 D1 Buy it now to save money. iPhone P QD1 QD2

8. 4. Expectations [of consumers] [about future availibility of toilet tissue] If there is expected to be a major shortage of toilet tissue, then consumers will stock up now or risk not getting any. D2 D1 P QD1 QD2

9. 4. Expectations [of consumers] [about future income] Let’s say that we are coming out of recession & consumers feel secure about their jobs. [Positive future income] D2 D1 P QD1 QD2

10. 4. Expectations [of consumers] [about future income] Let’s say that we are going into a recession and consumers don’t feel secure about their jobs. [Negative future income] D1 D2 P QD2 QD1

11. 5. Prices of Related Goods [Substitutes-Direct; Complements-Inverse] D1 D2 D D1 P1 D2 P P P2 QD2 Complement [Inverse] QD1 Substitute [Direct] Cereal Pop Tarts Milk

12. Now, Let's Take A Look At The Seven Supply Shifters ["RATNEST"]

13. 1.ResourceCost[wages & raw materials][Inverse] Wages Raw Materials If resource cost increases supply Decreases [making less $] If resource cost decreases supply Increases [making more $] S S S P

14. 2. Alternative Output Price Change [Inverse] I only have 200 acres “Substitutes in production” Corn S1 Broccoli S2 P1 S P2 P QS1 QS2 Producers want to produce more of the good where price is increasing, Corn Broccoli S1 S P1 S2 P P2 QS1 QS2 or at least, where the price is not going down.

15. 3. Technological Improvement [Cow Waterbeds] Waterbedsforcows.com We love these cow waterbeds because we get better blood flow and can produce 30% more milk. Less skin abrasions so happier cows produce more milk. Because cows produce more milk,farmers don’t have to have as many cows.[saves$] Supply curve moves “udderly” to the right. S S P Mooooove over and give me that waterbed.

16. P S1 $50 Q 4. Number of Suppliers [Direct] NFL S3 XFL in 2001 8 new teams Because of the XFL’s cheerleaders many called this league, not the XFL, but the QS QS Supply of FB games each week XFL [Extreme Football League] XXXFL Supply of FB games increased when the XFL was formed.

17. 5. Producer Expectations about Future Price [“INVERSE”] S2 S1 S2 If oil producers expectfuture oilprices todecline, they will (increase/decrease) current production. Oil Prices expected to decrease Oil Prices expected to increase P If oil producers expect future oil prices to increase, they will (increase/decrease) current production.

18. 6. Subsidies - free money from government [Direct] S3 S1 S2 P Free money from the government (subsidies) induces suppliers to supply more. If subsidies are taken away, then suppliers are losing money and will decrease supply.

19. 7. Taxes Take Away Business Profits & Decrease Supply. [Inverse] S3 S1 S2 P I’m losing profits.” If business have their taxes decreased, it moves the supply curve to the right. If business have their taxes increased, it moves the supply curve to the left.

20. The End