Factors That Shift Demand Curve

3.2 Shifts in Need and Supply for Goods and Services

Learning Objectives

By the end of this department, you will exist able to:

• Identify factors that bear upon need
• Graph need curves and demand shifts
• Place factors that impact supply
• Graph supply curves and supply shifts

The previous module explored how price affects the quantity demanded and the quantity supplied. The result was the demand curve and the supply curve. Cost, however, is non the but thing that influences demand. Nor is it the just thing that influences supply. For example, how is demand for vegetarian food afflicted if, say, health concerns cause more consumers to avoid eating meat? Or how is the supply of diamonds affected if diamond producers find several new diamond mines? What are the major factors, in improver to the cost, that influence demand or supply?

Visit this website to read a brief note on how marketing strategies can influence supply and demand of products.

What Factors Affect Need?

Nosotros divers demand equally the amount of some product a consumer is willing and able to purchase at each price. That suggests at least two factors in add-on to price that touch on demand. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither need nor want something, you volition not purchase it. Power to buy suggests that income is important. Professors are ordinarily able to afford better housing and transportation than students, because they have more income. Prices of related goods can touch demand likewise. If you need a new car, the toll of a Honda may touch your need for a Ford. Finally, the size or limerick of the population can affect demand. The more children a family has, the greater their need for wear. The more driving-age children a family has, the greater their need for car insurance, and the less for diapers and babe formula.

These factors matter both for demand past an private and need past the marketplace as a whole. Exactly how do these various factors affect demand, and how do we show the furnishings graphically? To reply those questions, we need the ceteris paribus assumption.

The Ceteris Paribus Supposition

A demand curve or a supply curve is a relationship betwixt two, and only 2, variables: quantity on the horizontal centrality and price on the vertical centrality. The assumption backside a demand curve or a supply curve is that no relevant economic factors, other than the production's price, are changing. Economists telephone call this supposition ceteris paribus, a Latin phrase meaning "other things existence equal." Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal. A demand bend or a supply bend is a relationship between 2, and but two, variables when all other variables are kept constant. If all else is non held equal, then the laws of supply and demand volition not necessarily agree, as the following Articulate It Up characteristic shows.

When does ceteris paribus apply?

Ceteris paribus is typically practical when we look at how changes in price touch demand or supply, just ceteris paribus can be applied more generally. In the real earth, demand and supply depend on more factors than but price. For example, a consumer'due south demand depends on income and a producer'southward supply depends on the toll of producing the product. How can we analyze the effect on need or supply if multiple factors are changing at the same time—say price rises and income falls? The answer is that we examine the changes one at a time, assuming the other factors are held constant.

For example, we tin say that an increase in the price reduces the corporeality consumers will buy (assuming income, and anything else that affects demand, is unchanged). Additionally, a subtract in income reduces the amount consumers tin can beget to purchase (assuming price, and anything else that affects demand, is unchanged). This is what the ceteris paribus assumption really means. In this detail case, afterwards we analyze each factor separately, nosotros can combine the results. The amount consumers purchase falls for 2 reasons: get-go considering of the higher price and second because of the lower income.

How Does Income Impact Demand?

Let's employ income equally an example of how factors other than price affect demand. Figure 1 shows the initial need for automobiles as D₀. At point Q, for example, if the cost is $xx,000 per car, the quantity of cars demanded is 18 1000000. D₀ also shows how the quantity of cars demanded would change as a effect of a higher or lower price. For example, if the cost of a car rose to $22,000, the quantity demanded would decrease to 17 million, at point R.

The original demand curve D₀, like every demand curve, is based on the ceteris paribus assumption that no other economically relevant factors change. At present imagine that the economy expands in a way that raises the incomes of many people, making cars more than affordable. How volition this affect need? How can we evidence this graphically?

Return to Effigy 1. The toll of cars is however $20,000, but with college incomes, the quantity demanded has now increased to 20 million cars, shown at point S. As a result of the higher income levels, the demand bend shifts to the right to the new demand curve D₁, indicating an increase in demand. Table four shows conspicuously that this increased demand would occur at every price, not just the original one.

Figure 1. Shifts in Demand: A Car Example. Increased demand ways that at every given price, the quantity demanded is higher, so that the demand bend shifts to the right from D₀ to D_one. Decreased demand means that at every given cost, the quantity demanded is lower, then that the demand curve shifts to the left from D₀ to D₂.

Price	Decrease to D2	Original Quantity Demanded D0	Increase to D1
$16,000	17.half-dozen million	22.0 million	24.0 million
$18,000	xvi.0 1000000	20.0 million	22.0 million
$20,000	xiv.4 meg	18.0 one thousand thousand	twenty.0 million
$22,000	13.6 million	17.0 million	19.0 million
$24,000	13.2 million	16.5 million	18.v million
$26,000	12.8 million	16.0 1000000	18.0 million
Tabular array iv. Cost and Demand Shifts: A Car Case

Now, imagine that the economy slows down so that many people lose their jobs or piece of work fewer hours, reducing their incomes. In this instance, the decrease in income would pb to a lower quantity of cars demanded at every given cost, and the original need curve D₀ would shift left to D₂. The shift from D₀ to D_ii represents such a subtract in need: At any given price level, the quantity demanded is now lower. In this example, a toll of $20,000 means eighteen million cars sold along the original need bend, merely merely 14.4 meg sold after need fell.

When a demand curve shifts, it does not mean that the quantity demanded by every individual heir-apparent changes by the same corporeality. In this instance, non anybody would have higher or lower income and not everyone would buy or non buy an boosted car. Instead, a shift in a demand curve captures an pattern for the marketplace as a whole.

In the previous section, we argued that college income causes greater need at every price. This is truthful for almost goods and services. For some—luxury cars, vacations in Europe, and fine jewelry—the effect of a ascension in income can exist peculiarly pronounced. A production whose demand rises when income rises, and vice versa, is called a normal good. A few exceptions to this pattern do exist. Every bit incomes rise, many people will purchase fewer generic make groceries and more name brand groceries. They are less likely to purchase used cars and more probable to buy new cars. They will be less likely to rent an apartment and more likely to own a home, and so on. A product whose need falls when income rises, and vice versa, is chosen an inferior proficient. In other words, when income increases, the need curve shifts to the left.

Other Factors That Shift Demand Curves

Income is non the only factor that causes a shift in need. Other things that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations. A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price volition crusade a shift in demand. Graphically, the new demand curve lies either to the right (an increment) or to the left (a decrease) of the original demand curve. Let'due south look at these factors.

Irresolute Tastes or Preferences

From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per yr to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.S. Section of Agronomics (USDA). Changes like these are largely due to movements in sense of taste, which alter the quantity of a expert demanded at every toll: that is, they shift the need curve for that skilful, rightward for chicken and leftward for beef.

Changes in the Composition of the Population

The proportion of elderly citizens in the The states population is ascent. Information technology rose from 9.8% in 1970 to 12.6% in 2000, and volition be a projected (by the U.S. Census Agency) 20% of the population by 2030. A society with relatively more than children, like the United States in the 1960s, volition have greater demand for goods and services like tricycles and 24-hour interval care facilities. A society with relatively more elderly persons, every bit the United States is projected to have by 2030, has a college need for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will exist shown equally a shift in the demand curve.

The demand for a production can also exist afflicted by changes in the prices of related goods such as substitutes or complements. A substitute is a practiced or service that can be used in identify of another skilful or service. As electronic books, similar this one, become more available, you lot would expect to run into a decrease in demand for traditional printed books. A lower price for a substitute decreases demand for the other production. For instance, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the police force of need). Since people are purchasing tablets, at that place has been a subtract in need for laptops, which can be shown graphically every bit a leftward shift in the demand curve for laptops. A higher price for a substitute good has the reverse effect.

Other goods are complements for each other, pregnant that the goods are often used together, because consumption of 1 good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-manner combination of bacon, lettuce, tomato, mayonnaise, and bread. If the price of golf clubs rises, since the quantity demanded of golf game clubs falls (because of the law of demand), need for a complement skillful like golf game balls decreases, too. Similarly, a higher price for skis would shift the need bend for a complement skillful like ski resort trips to the left, while a lower price for a complement has the reverse effect.

What if y'all knew next week's gas price this calendar week?

In 2005, the Hawaiʻi state legislature introduced a cap on the price of gasoline. The cap changed from week to week and next calendar week's cap was announced this week. This meant everybody in Hawaiʻi had a perfect prediction of adjacent calendar week's gas prices! What do you recollect happened? When people expected gas to exist more expensive next week, everybody went out and bought gas (demand shifted to the right). When people expected gas to be cheaper side by side week, demand shifted to the left, people stopped buying gasoline and cars started getting stranded on the side of the road! Ask your older family members if they remember Hawaiʻi's failed gas price experiment.

Changes in Expectations about Futurity Prices or Other Factors that Affect Need

Hurricane Warning. What happens when there is a tsunami or hurricane warning? Local households blitz to stock up on propane, h2o, rice, and toilet paper. People look these goods to be scarce in the hereafter so they current demand increases.

While it is clear that the toll of a skillful affects the quantity demanded, it is too truthful that expectations almost the time to come price (or expectations about tastes and preferences, income, and so on) can touch demand. For instance, if people hear that a hurricane is coming (run into above), they may blitz to the shop to buy flashlight batteries and bottled water. If people acquire that the toll of a good like coffee is likely to rise in the future, they may head for the store to stock up on coffee now. These changes in demand are shown as shifts in the bend. Therefore, a shift in demand happens when a change in some economic gene (other than toll) causes a different quantity to be demanded at every toll. The following Work It Out feature shows how this happens.

Shift in Demand

A shift in demand means that at whatever price (and at every cost), the quantity demanded will be different than it was earlier. Post-obit is an example of a shift in need due to an income increase.

Step ane. Draw the graph of a demand curve for a normal good similar pizza. Pick a price (similar P₀). Place the corresponding Q₀. An example is shown in Figure 2.

Figure 2. Demand Curve. The demand curve can be used to place how much consumers would buy at any given price.

Footstep 2. Suppose income increases. Every bit a event of the change, are consumers going to purchase more than or less pizza? The answer is more than. Draw a dotted horizontal line from the called price, through the original quantity demanded, to the new point with the new Q_i. Draw a dotted vertical line down to the horizontal axis and characterization the new Q_one. An example is provided in Figure 3.

Figure 3. Need Curve with Income Increase. With an increase in income, consumers will purchase larger quantities, pushing demand to the right.

Stride iii. Now, shift the bend through the new indicate. You will see that an increase in income causes an upwards (or rightward) shift in the demand curve, so that at whatsoever price the quantities demanded will be college, equally shown in Figure four.

Figure four. Demand Bend Shifted Correct. With an increment in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.

Summing Up Factors That Change Demand

Half dozen factors that tin shift demand curves are summarized in Figure 5. The direction of the arrows indicates whether the demand curve shifts represent an increment in demand or a decrease in demand. Notice that a change in the cost of the skillful or service itself is non listed amidst the factors that tin can shift a demand curve. A change in the price of a skilful or service causes a motility forth a specific need curve, and it typically leads to some alter in the quantity demanded, simply it does non shift the demand bend.

Figure 5. Factors That Shift Need Curves. (a) A listing of factors that tin can cause an increase in demand from D₀ to D_i. (b) The same factors, if their direction is reversed, can crusade a subtract in demand from D₀ to D₁.

When a demand bend shifts, it will and so intersect with a given supply bend at a different equilibrium toll and quantity. We are, however, getting ahead of our story. Before discussing how changes in demand tin affect equilibrium price and quantity, we first need to discuss shifts in supply curves.

How Product Costs Affect Supply

A supply curve shows how quantity supplied will change as the price rises and falls, assuming ceteris paribus so that no other economically relevant factors are changing. If other factors relevant to supply practise change, then the entire supply curve volition shift. But every bit a shift in demand is represented past a change in the quantity demanded at every price, a shift in supply means a change in the quantity supplied at every cost.

In thinking about the factors that touch on supply, remember what motivates firms: profits, which are the difference between revenues and costs. Appurtenances and services are produced using combinations of labor, materials, and machinery, or what nosotros phone call inputs or factors of product. If a firm faces lower costs of production, while the prices for the good or service the firm produces remain unchanged, a firm'south profits go up. When a firm's profits increase, it is more motivated to produce output, since the more than it produces the more profit it volition earn. So, when costs of production autumn, a firm volition tend to supply a larger quantity at any given cost for its output. This tin be shown past the supply curve shifting to the correct.

Take, for example, a messenger company that delivers packages effectually a metropolis. The company may find that buying gasoline is one of its main costs. If the price of gasoline falls, and so the company will find it can deliver messages more cheaply than before. Since lower costs stand for to higher profits, the messenger company may now supply more of its services at any given price. For example, given the lower gasoline prices, the visitor tin can at present serve a greater area, and increase its supply.

Conversely, if a business firm faces college costs of production, and then it will earn lower profits at whatever given selling price for its products. As a result, a higher cost of production typically causes a firm to supply a smaller quantity at whatever given price. In this example, the supply bend shifts to the left.

Consider the supply for cars, shown past curve South₀ in Figure half-dozen. Indicate J indicates that if the price is $20,000, the quantity supplied will be 18 meg cars. If the toll rises to $22,000 per car, ceteris paribus, the quantity supplied volition rise to twenty million cars, as point K on the S₀ curve shows. The same information can be shown in tabular array form, equally in Table v.

Figure 6. Shifts in Supply: A Automobile Instance. Decreased supply ways that at every given price, the quantity supplied is lower, so that the supply bend shifts to the left, from S₀ to S_ane. Increased supply means that at every given price, the quantity supplied is higher, and then that the supply bend shifts to the right, from South₀ to S₂.

Price	Decrease to S1	Original Quantity Supplied S0	Increment to Stwo
$sixteen,000	x.5 million	12.0 million	13.2 one thousand thousand
$18,000	13.5 million	15.0 million	sixteen.5 meg
$twenty,000	16.5 one thousand thousand	18.0 million	19.8 one thousand thousand
$22,000	eighteen.5 million	20.0 million	22.0 one thousand thousand
$24,000	xix.5 million	21.0 1000000	23.1 million
$26,000	20.5 million	22.0 million	24.2 meg
Table 5. Cost and Shifts in Supply: A Auto Instance

Now, imagine that the price of steel, an important ingredient in manufacturing cars, rises, then that producing a automobile has become more expensive. At whatsoever given price for selling cars, machine manufacturers will react past supplying a lower quantity. This can be shown graphically as a leftward shift of supply, from Southward₀ to S₁, which indicates that at whatsoever given price, the quantity supplied decreases. In this example, at a cost of $20,000, the quantity supplied decreases from 18 1000000 on the original supply curve (S₀) to sixteen.5 1000000 on the supply bend S_one, which is labeled as point Fifty.

Conversely, if the price of steel decreases, producing a car becomes less expensive. At any given price for selling cars, car manufacturers can now await to earn higher profits, and so they will supply a higher quantity. The shift of supply to the right, from S₀ to Due south₂, ways that at all prices, the quantity supplied has increased. In this example, at a price of $20,000, the quantity supplied increases from 18 1000000 on the original supply curve (S₀) to 19.viii million on the supply curve Southward₂, which is labeled M.

Other Factors That Affect Supply

In the example above, we saw that changes in the prices of inputs in the product process will affect the cost of product and thus the supply. Several other things touch the cost of product, too, such equally changes in conditions or other natural conditions, new technologies for production, and some government policies.

The price of product for many agronomical products will exist affected by changes in natural conditions. For example, in 2014 the Manchurian Evidently in Northeastern China, which produces most of the country'due south wheat, corn, and soybeans, experienced its about astringent drought in 50 years. A drought decreases the supply of agricultural products, which means that at any given price, a lower quantity will exist supplied; conversely, especially good weather would shift the supply curve to the right.

When a firm discovers a new technology that allows the firm to produce at a lower price, the supply curve will shift to the right, every bit well. For instance, in the 1960s a major scientific effort nicknamed the Green Revolution focused on convenance improved seeds for basic crops like wheat and rice. Past the early 1990s, more two-thirds of the wheat and rice in low-income countries around the world was grown with these Green Revolution seeds—and the harvest was twice equally high per acre. A technological improvement that reduces costs of production volition shift supply to the right, so that a greater quantity will be produced at whatsoever given toll.

Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U.S. government imposes a tax on alcoholic beverages that collects near $8 billion per year from producers. Taxes are treated equally costs by businesses. Higher costs decrease supply for the reasons discussed higher up. Other examples of policy that tin impact cost are the wide array of authorities regulations that crave firms to spend coin to provide a cleaner environment or a safer workplace; complying with regulations increases costs.

A government subsidy, on the other hand, is the reverse of a revenue enhancement. A subsidy occurs when the authorities pays a house directly or reduces the business firm's taxes if the firm carries out certain actions. From the firm's perspective, taxes or regulations are an additional price of production that shifts supply to the left, leading the firm to produce a lower quantity at every given price. Government subsidies reduce the cost of production and increment supply at every given toll, shifting supply to the right. The following Work It Out feature shows how this shift happens.

Shift in Supply

Nosotros know that a supply curve shows the minimum price a house will have to produce a given quantity of output. What happens to the supply curve when the cost of production goes upwards? Following is an case of a shift in supply due to a production cost increase.

Stride 1. Draw a graph of a supply curve for pizza. Pick a quantity (like Q₀). If you draw a vertical line up from Q₀ to the supply curve, you will see the price the firm chooses. An case is shown in Figure 7.

Figure vii. Supply Bend. The supply curve tin be used to bear witness the minimum price a firm will take to produce a given quantity of output.

Pace 2. Why did the business firm choose that price and not another? One mode to think about this is that the price is composed of two parts. The starting time part is the average cost of production, in this example, the cost of the pizza ingredients (dough, sauce, cheese, pepperoni, and so on), the cost of the pizza oven, the rent on the shop, and the wages of the workers. The 2d function is the firm'south desired profit, which is determined, amid other factors, by the profit margins in that particular business. If you add together these ii parts together, y'all get the toll the firm wishes to charge. The quantity Q0 and associated price P0 requite y'all one point on the business firm'due south supply curve, as shown in Effigy 8.

Figure 8. Setting Prices. The toll of production and the desired profit equal the toll a business firm will set for a product.

Step 3. At present, suppose that the toll of product goes up. Mayhap cheese has become more than expensive past $0.75 per pizza. If that is true, the firm will want to raise its price by the amount of the increase in cost ($0.75). Depict this signal on the supply curve direct above the initial point on the curve, but $0.75 college, as shown in Effigy 9.

Figure 9. Increasing Costs Leads to Increasing Price. Because the cost of production and the desired profit equal the price a firm volition set up for a product, if the cost of product increases, the price for the product volition as well need to increase.

Step 4. Shift the supply curve through this point. You will run into that an increase in cost causes an upward (or a leftward) shift of the supply curve so that at any price, the quantities supplied volition be smaller, as shown in Figure 10.

Effigy 10. Supply Curve Shifts. When the cost of production increases, the supply bend shifts up to a new cost level.

Summing Up Factors That Change Supply

Changes in the toll of inputs, natural disasters, new technologies, and the impact of government decisions all touch on the cost of production. In turn, these factors bear on how much firms are willing to supply at any given toll.

Figure 11 summarizes factors that change the supply of appurtenances and services. Discover that a alter in the price of the product itself is not amid the factors that shift the supply bend. Although a change in cost of a good or service typically causes a change in quantity supplied or a movement forth the supply curve for that specific expert or service, it does not cause the supply curve itself to shift.

Figure xi. Factors That Shift Supply Curves. (a) A list of factors that tin can cause an increase in supply from S₀ to S_i. (b) The same factors, if their direction is reversed, can cause a decrease in supply from S₀ to S_one.

Because demand and supply curves appear on a two-dimensional diagram with only cost and quantity on the axes, an unwary visitor to the land of economics might be fooled into believing that economics is about just iv topics: demand, supply, toll, and quantity. All the same, need and supply are really "umbrella" concepts: demand covers all the factors that bear on demand, and supply covers all the factors that affect supply. Factors other than price that bear on need and supply are included by using shifts in the demand or the supply bend. In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a broad range of economic circumstances.

Primal Concepts and Summary

Economists often use the ceteris paribus or "other things being equal" assumption: while examining the economic impact of i effect, all other factors remain unchanged for the purpose of the analysis. Factors that can shift the need bend for goods and services, causing a different quantity to exist demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the supply curve for goods and services, causing a unlike quantity to exist supplied at any given cost, include input prices, natural conditions, changes in applied science, and authorities taxes, regulations, or subsidies.

Cocky-Check Questions

1. Why do economists utilize the ceteris paribus assumption?
2. In an assay of the market for paint, an economist discovers the facts listed below. Country whether each of these changes will affect supply or need, and in what management.
   1. There have recently been some important toll-saving inventions in the technology for making paint.
   2. Paint is lasting longer, so that property owners need not repaint equally ofttimes.
   3. Considering of severe hailstorms, many people need to repaint now.
   4. The hailstorms damaged several factories that make pigment, forcing them to close downwards for several months.
3. Many changes are affecting the market place for oil. Predict how each of the following events will touch on the equilibrium price and quantity in the marketplace for oil. In each case, country how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
   1. Cars are becoming more fuel efficient, and therefore get more than miles to the gallon.
   2. The winter is uncommonly cold.
   3. A major discovery of new oil is made off the coast of Norway.
   4. The economies of some major oil-using nations, like Nihon, dull down.
   5. A state of war in the Centre East disrupts oil-pumping schedules.
   6. Landlords install boosted insulation in buildings.
   7. The toll of solar energy falls dramatically.
   8. Chemical companies invent a new, pop kind of plastic made from oil.

Review Questions

1. When analyzing a market, how do economists deal with the problem that many factors that affect the marketplace are changing at the same time?
2. Name some factors that tin can cause a shift in the demand curve in markets for appurtenances and services.
3. Name some factors that can cause a shift in the supply bend in markets for goods and services.

Critical Thinking Questions

1. Consider the demand for hamburgers. If the cost of a substitute good (for case, hot dogs) increases and the price of a complement skilful (for example, hamburger buns) increases, tin you tell for sure what will happen to the demand for hamburgers? Why or why not? Illustrate your respond with a graph.
2. How do you suppose the demographics of an aging population of "Baby Boomers" in the United States will affect the need for milk? Justify your answer.
3. We know that a change in the price of a product causes a movement along the demand bend. Suppose consumers believe that prices will exist rising in the future. How will that affect demand for the production in the nowadays? Can you lot show this graphically?
4. Suppose there is soda taxation to curb obesity. What should a reduction in the soda tax exercise to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: presume that the soda tax is collected from the sellers

Issues

1. Table vi shows information on the need and supply for bicycles, where the quantities of bicycles are measured in thousands.
   

   Price	Qd	Qs
   $120	50	36
   $150	40	xl
   $180	32	48
   $210	28	56
   $240	24	lxx
   Table vi. Demand and Supply for Bicycles

   1. What is the quantity demanded and the quantity supplied at a price of $210?
   2. At what price is the quantity supplied equal to 48,000?
   3. Graph the need and supply curve for bicycles. How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the tabular array? What are the equilibrium price and equilibrium quantity?
   4. If the price was $120, what would the quantities demanded and supplied be? Would a shortage or surplus be? If so, how large would the shortage or surplus be?
2. The computer market in contempo years has seen many more computers sell at much lower prices. What shift in need or supply is nearly likely to explain this consequence? Sketch a demand and supply diagram and explain your reasoning for each.
   1. A ascent in demand
   2. A autumn in demand
   3. A rise in supply
   4. A fall in supply

References

Landsburg, Steven E. The Armchair Economist: Economics and Everyday Life. New York: The Free Press. 2012. specifically Section IV: How Markets Work.

National Chicken Council. 2015. "Per Capita Consumption of Poultry and Livestock, 1965 to Estimated 2015, in Pounds." Accessed April 13, 2015. http://www.nationalchickencouncil.org/almost-the-industry/statistics/per-capita-consumption-of-poultry-and-livestock-1965-to-estimated-2012-in-pounds/.

Wessel, David. "Saudi arabia Fears $40-a-Barrel Oil, Likewise." The Wall Street Journal. May 27, 2004, p. 42. http://online.wsj.com/news/articles/SB108561000087822300.

Glossary

ceteris paribus

other things being equal

complements

goods that are often used together so that consumption of 1 proficient tends to enhance consumption of the other

factors of product

the combination of labor, materials, and machinery that is used to produce appurtenances and services; also called inputs

inferior good

a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

inputs

the combination of labor, materials, and machinery that is used to produce appurtenances and services; too called factors of production

normal good

a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

shift in demand

when a change in some economical gene (other than price) causes a dissimilar quantity to be demanded at every toll

shift in supply

when a change in some economic factor (other than price) causes a different quantity to be supplied at every price

substitute

a proficient that can supersede another to some extent, then that greater consumption of ane proficient can hateful less of the other

Solutions

Answers to Cocky-Check Questions

1. To make information technology easier to analyze circuitous problems. Ceteris paribus allows yous to wait at the effect of one factor at a time on what it is you lot are trying to analyze. When you have analyzed all the factors individually, you add the results together to become the last answer.
2. 1. An improvement in engineering science that reduces the cost of product will cause an increment in supply. Alternatively, you tin can think of this every bit a reduction in cost necessary for firms to supply any quantity. Either mode, this can be shown equally a rightward (or downwardly) shift in the supply curve.
   2. An improvement in production quality is treated as an increase in tastes or preferences, significant consumers demand more than paint at whatever cost level, so demand increases or shifts to the right. If this seems counterintuitive, note that need in the future for the longer-lasting paint volition fall, since consumers are essentially shifting demand from the future to the present.
   3. An increase in need causes an increment in demand or a rightward shift in the need curve.
   4. Mill damage means that firms are unable to supply every bit much in the present. Technically, this is an increment in the cost of production. Either way you lot look at it, the supply curve shifts to the left.
3. 1. More fuel-efficient cars means there is less need for gasoline. This causes a leftward shift in the need for gasoline and thus oil. Since the need curve is shifting down the supply bend, the equilibrium price and quantity both fall.
   2. Common cold weather increases the demand for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the need curve is shifting up the supply bend, the equilibrium price and quantity both rise.
   3. A discovery of new oil will make oil more abundant. This tin can exist shown every bit a rightward shift in the supply bend, which will cause a decrease in the equilibrium price along with an increase in the equilibrium quantity. (The supply curve shifts downward the demand curve so price and quantity follow the law of demand. If price goes down, then the quantity goes up.)
   4. When an economy slows down, it produces less output and demands less input, including free energy, which is used in the production of nearly everything. A subtract in demand for energy will be reflected as a decrease in the need for oil, or a leftward shift in demand for oil. Since the demand curve is shifting downwardly the supply curve, both the equilibrium cost and quantity of oil will fall.
   5. Disruption of oil pumping will reduce the supply of oil. This leftward shift in the supply curve volition show a movement up the demand curve, resulting in an increase in the equilibrium cost of oil and a decrease in the equilibrium quantity.
   6. Increased insulation volition decrease the demand for heating. This leftward shift in the demand for oil causes a movement down the supply curve, resulting in a decrease in the equilibrium toll and quantity of oil.
   7. Solar energy is a substitute for oil-based free energy. And then if solar energy becomes cheaper, the demand for oil will decrease as consumers switch from oil to solar. The decrease in demand for oil will be shown as a leftward shift in the demand curve. Every bit the demand bend shifts down the supply curve, both equilibrium price and quantity for oil will fall.
   8. A new, pop kind of plastic will increase the demand for oil. The increase in demand volition be shown as a rightward shift in need, raising the equilibrium price and quantity of oil.

Factors That Shift Demand Curve,

Source: https://pressbooks.oer.hawaii.edu/principlesofmicroeconomics/chapter/3-2-shifts-in-demand-and-supply-for-goods-and-services/

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