Other Things Constant Which of the Following Would Not Cause a Change in the Long-run Supply of Beef

Chapter 3. Demand and Supply

iii.2 Shifts in Demand and Supply for Appurtenances and Services

Learning Objectives

Past the finish of this section, y'all volition be able to:

• Place factors that bear on demand
• Graph demand curves and demand shifts
• Identify factors that affect 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 bend and the supply curve. Price, however, is not the but thing that influences need. Nor is it the only thing that influences supply. For instance, how is need for vegetarian food affected if, say, wellness concerns cause more than consumers to avoid eating meat? Or how is the supply of diamonds affected if diamond producers notice several new diamond mines? What are the major factors, in addition to the price, that influence need or supply?

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

What Factors Impact Demand?

Nosotros divers demand as the amount of some product a consumer is willing and able to buy at each cost. That suggests at least two factors in addition to price that touch demand. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither need nor desire something, yous will not purchase information technology. Ability to purchase suggests that income is important. Professors are usually able to afford better housing and transportation than students, because they have more income. Prices of related appurtenances can affect need also. If y'all need a new car, the price of a Honda may touch your demand for a Ford. Finally, the size or composition of the population tin can affect demand. The more than children a family has, the greater their need for clothing. The more driving-age children a family has, the greater their demand for car insurance, and the less for diapers and infant formula.

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

The Ceteris Paribus Assumption

A demand curve or a supply curve is a relationship between 2, and only two, variables: quantity on the horizontal axis and cost on the vertical axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the production'due south price, are irresolute. Economists call this assumption ceteris paribus, a Latin phrase meaning "other things being equal." Any given demand or supply bend is based on the ceteris paribus assumption that all else is held equal. A demand curve or a supply bend is a relationship betwixt 2, and merely two, variables when all other variables are kept constant. If all else is not held equal, and so the laws of supply and demand will not necessarily concord, equally the following Articulate Information technology Up feature shows.

When does ceteris paribus employ?

Ceteris paribus is typically applied when we wait at how changes in price affect demand or supply, but ceteris paribus tin be applied more more often than not. In the real world, demand and supply depend on more factors than just price. For example, a consumer's demand depends on income and a producer'due south supply depends on the cost of producing the product. How tin can nosotros clarify 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 1 at a fourth dimension, assuming the other factors are held constant.

For example, we tin say that an increase in the toll reduces the amount consumers will buy (bold income, and anything else that affects demand, is unchanged). Additionally, a decrease in income reduces the amount consumers tin can afford to purchase (assuming price, and anything else that affects demand, is unchanged). This is what the ceteris paribus assumption really means. In this particular case, later on we clarify each factor separately, we can combine the results. The amount consumers purchase falls for two reasons: first because of the higher cost and second because of the lower income.

How Does Income Affect Demand?

Let'southward utilize income as an example of how factors other than price affect need. Effigy i shows the initial demand for automobiles as D₀. At point Q, for example, if the price is $xx,000 per car, the quantity of cars demanded is eighteen 1000000. D₀ also shows how the quantity of cars demanded would modify every bit a result of a college or lower price. For example, if the price of a automobile rose to $22,000, the quantity demanded would decrease to 17 million, at point R.

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

Return to Figure 1. The price of cars is still $20,000, but with higher incomes, the quantity demanded has now increased to 20 one thousand thousand cars, shown at point S. As a result of the college income levels, the demand curve shifts to the right to the new demand curve D_ane, indicating an increment in demand. Table four shows clearly that this increased need would occur at every price, non simply the original one.

Figure ane. Shifts in Demand: A Automobile Instance. Increased demand ways that at every given cost, the quantity demanded is higher, so that the demand bend shifts to the right from D₀ to D₁. Decreased demand ways that at every given price, the quantity demanded is lower, so that the demand curve shifts to the left from D₀ to D_two.

Price	Decrease to Dii	Original Quantity Demanded D0	Increase to D1
$sixteen,000	17.six million	22.0 million	24.0 one thousand thousand
$eighteen,000	xvi.0 million	20.0 million	22.0 million
$twenty,000	xiv.iv one thousand thousand	xviii.0 meg	twenty.0 million
$22,000	13.6 meg	17.0 million	19.0 million
$24,000	13.2 1000000	sixteen.5 million	18.5 million
$26,000	12.viii million	16.0 meg	18.0 1000000
Table 4. Price and Demand Shifts: A Motorcar Example

Now, imagine that the economic system slows down and so that many people lose their jobs or piece of work fewer hours, reducing their incomes. In this case, the decrease in income would atomic number 82 to a lower quantity of cars demanded at every given price, and the original demand curve D₀ would shift left to D₂. The shift from D₀ to D_two represents such a decrease in demand: At any given price level, the quantity demanded is now lower. In this instance, a cost of $twenty,000 means 18 million cars sold forth the original need curve, but only 14.4 million sold after demand fell.

When a demand bend shifts, it does non mean that the quantity demanded by every individual buyer changes by the same amount. In this example, non anybody would have higher or lower income and non everyone would buy or not buy an additional car. Instead, a shift in a demand curve captures an pattern for the market every bit a whole.

In the previous department, nosotros argued that college income causes greater need at every price. This is true for well-nigh goods and services. For some—luxury cars, vacations in Europe, and fine jewelry—the effect of a rise in income can be especially 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. Equally incomes ascent, many people will buy fewer generic make groceries and more than proper noun brand groceries. They are less likely to purchase used cars and more likely to buy new cars. They will be less likely to rent an apartment and more probable to own a domicile, and then on. A production whose need falls when income rises, and vice versa, is called an inferior good. In other words, when income increases, the demand curve shifts to the left.

Other Factors That Shift Demand Curves

Income is not the only gene that causes a shift in need. Other things that alter demand include tastes and preferences, the composition or size of the population, the prices of related appurtenances, and even expectations. A modify in whatever one of the underlying factors that determine what quantity people are willing to buy at a given toll will cause a shift in need. Graphically, the new need curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Allow'due south look at these factors.

Irresolute Tastes or Preferences

From 1980 to 2014, the per-person consumption of craven by Americans rose from 48 pounds per year to 85 pounds per twelvemonth, and consumption of beef savage from 77 pounds per year to 54 pounds per yr, according to the U.Due south. Department of Agriculture (USDA). Changes similar these are largely due to movements in taste, which alter the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef.

Changes in the Composition of the Population

The proportion of elderly citizens in the United States population is rising. It rose from ix.8% in 1970 to 12.6% in 2000, and will exist a projected (by the U.S. Census Bureau) 20% of the population past 2030. A society with relatively more children, like the United States in the 1960s, will accept greater need for appurtenances and services similar tricycles and mean solar day care facilities. A society with relatively more elderly persons, as the United states of america is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the need for housing and many other goods. Each of these changes in need will be shown as a shift in the need curve.

The demand for a product can as well be affected past changes in the prices of related goods such as substitutes or complements. A substitute is a skillful or service that tin be used in place of some other good or service. As electronic books, like this one, become more available, yous would expect to run into a decrease in demand for traditional printed books. A lower price for a substitute decreases need for the other production. For instance, in recent years every bit the price of tablet computers has fallen, the quantity demanded has increased (because of the law of demand). Since people are purchasing tablets, there has been a decrease in demand for laptops, which can be shown graphically as a leftward shift in the demand curve for laptops. A college cost for a substitute good has the reverse effect.

Other goods are complements for each other, meaning that the appurtenances are often used together, because consumption of ane good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf game clubs; gasoline and sport utility vehicles; and the 5-way combination of salary, lettuce, tomato, mayonnaise, and bread. If the toll of golf clubs rises, since the quantity demanded of golf game clubs falls (because of the law of demand), demand for a complement good like golf game balls decreases, too. Similarly, a higher price for skis would shift the demand bend for a complement proficient similar ski resort trips to the left, while a lower cost for a complement has the opposite result.

Changes in Expectations near Future Prices or Other Factors that Affect Demand

While information technology is clear that the price of a good affects the quantity demanded, it is also truthful that expectations about the future toll (or expectations about tastes and preferences, income, and so on) can affect demand. For example, if people hear that a hurricane is coming, they may rush to the store to buy flashlight batteries and bottled water. If people learn that the price of a good like coffee is likely to rising in the future, they may caput for the store to stock up on coffee now. These changes in need are shown every bit shifts in the curve. Therefore, a shift in demand happens when a change in some economic factor (other than price) causes a different quantity to exist demanded at every price. The post-obit Work It Out feature shows how this happens.

Shift in Need

A shift in demand means that at any toll (and at every cost), the quantity demanded volition be dissimilar than it was before. Post-obit is an example of a shift in demand due to an income increase.

Step 1. Draw the graph of a demand curve for a normal good like pizza. Pick a price (similar P₀). Identify the corresponding Q₀. An example is shown in Figure ii.

Figure 2. Demand Curve. The need curve can be used to identify how much consumers would buy at any given cost.

Step 2. Suppose income increases. As a effect of the modify, are consumers going to buy more than or less pizza? The respond is more. Draw a dotted horizontal line from the called toll, through the original quantity demanded, to the new signal with the new Q_one. Depict a dotted vertical line downwards to the horizontal axis and label the new Q_i. An example is provided in Effigy 3.

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

Step 3. Now, shift the bend through the new betoken. You volition see that an increase in income causes an upwardly (or rightward) shift in the demand bend, so that at any toll the quantities demanded will be college, as shown in Figure iv.

Figure 4. Demand Curve Shifted Correct. With an increase in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.

Summing Up Factors That Modify Demand

Six factors that tin shift demand curves are summarized in Figure 5. The direction of the arrows indicates whether the demand curve shifts stand for an increase in demand or a subtract in demand. Notice that a change in the price of the good or service itself is not listed among the factors that can shift a demand curve. A change in the toll of a practiced or service causes a movement along a specific need bend, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.

Effigy 5. Factors That Shift Demand Curves. (a) A listing of factors that can cause an increase in demand from D₀ to D₁. (b) The aforementioned factors, if their management is reversed, can crusade a decrease in demand from D₀ to D_one.

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

How Production Costs Affect Supply

A supply curve shows how quantity supplied volition alter every bit the price rises and falls, assuming ceteris paribus so that no other economically relevant factors are changing. If other factors relevant to supply practise modify, then the unabridged supply curve will shift. Merely equally a shift in demand is represented by a change in the quantity demanded at every price, a shift in supply ways a change in the quantity supplied at every price.

In thinking virtually the factors that affect supply, remember what motivates firms: profits, which are the difference betwixt revenues and costs. Goods and services are produced using combinations of labor, materials, and machinery, or what nosotros call inputs or factors of product. If a house faces lower costs of production, while the prices for the adept or service the firm produces remain unchanged, a firm'south profits go upward. When a firm's profits increase, it is more motivated to produce output, since the more than it produces the more turn a profit it will earn. So, when costs of production fall, a firm will tend to supply a larger quantity at any given toll for its output. This can be shown by the supply curve shifting to the right.

Have, for case, a messenger company that delivers packages around a city. The visitor may detect that buying gasoline is one of its main costs. If the price of gasoline falls, then the visitor will discover it can deliver messages more cheaply than before. Since lower costs stand for to college profits, the messenger company may now supply more of its services at any given price. For instance, given the lower gasoline prices, the company tin can now serve a greater area, and increase its supply.

Conversely, if a business firm faces higher costs of production, and so it volition earn lower profits at any given selling price for its products. As a result, a college cost of production typically causes a firm to supply a smaller quantity at any given toll. In this case, the supply curve shifts to the left.

Consider the supply for cars, shown by curve S₀ in Figure half-dozen. Indicate J indicates that if the toll is $20,000, the quantity supplied volition be 18 million cars. If the price rises to $22,000 per auto, ceteris paribus, the quantity supplied will rising to xx one thousand thousand cars, equally betoken G on the S₀ bend shows. The same information can be shown in table grade, as in Tabular array 5.

Figure six. Shifts in Supply: A Car Example. Decreased supply means that at every given price, the quantity supplied is lower, and then that the supply curve shifts to the left, from Due south₀ to S_ane. Increased supply means that at every given toll, the quantity supplied is college, so that the supply curve shifts to the right, from S₀ to South₂.

Price	Decrease to Sone	Original Quantity Supplied Southward0	Increment to Southtwo
$16,000	10.five one thousand thousand	12.0 million	thirteen.2 million
$eighteen,000	13.five million	15.0 million	16.5 million
$20,000	xvi.5 million	18.0 million	19.viii million
$22,000	eighteen.v million	20.0 million	22.0 million
$24,000	xix.5 one thousand thousand	21.0 million	23.1 million
$26,000	xx.five 1000000	22.0 million	24.2 meg
Tabular array v. Price and Shifts in Supply: A Car Example

Now, imagine that the toll of steel, an important ingredient in manufacturing cars, rises, so that producing a auto has get more expensive. At whatever given price for selling cars, car manufacturers will react past supplying a lower quantity. This tin be shown graphically equally a leftward shift of supply, from S₀ to Due south_i, which indicates that at whatsoever given price, the quantity supplied decreases. In this instance, at a toll of $20,000, the quantity supplied decreases from 18 million on the original supply bend (S₀) to 16.5 million on the supply curve S₁, which is labeled as indicate Fifty.

Conversely, if the price of steel decreases, producing a auto becomes less expensive. At any given toll for selling cars, auto manufacturers can now expect to earn higher profits, so they will supply a higher quantity. The shift of supply to the right, from Southward₀ to S₂, means that at all prices, the quantity supplied has increased. In this case, at a price of $20,000, the quantity supplied increases from 18 meg on the original supply curve (S₀) to 19.viii meg on the supply curve S_two, which is labeled G.

Other Factors That Bear upon Supply

In the example above, we saw that changes in the prices of inputs in the product procedure volition affect the price of production and thus the supply. Several other things affect the cost of product, too, such as changes in weather or other natural conditions, new technologies for production, and some government policies.

The cost of production for many agricultural products volition be affected past changes in natural conditions. For case, in 2014 the Manchurian Evidently in Northeastern China, which produces most of the country's wheat, corn, and soybeans, experienced its nearly severe drought in 50 years. A drought decreases the supply of agricultural products, which ways that at whatsoever given cost, a lower quantity will be supplied; conversely, especially good weather condition would shift the supply curve to the right.

When a firm discovers a new technology that allows the house to produce at a lower toll, the supply bend will shift to the right, as well. For instance, in the 1960s a major scientific try nicknamed the Dark-green Revolution focused on breeding improved seeds for basic crops similar wheat and rice. By the early 1990s, more than 2-thirds of the wheat and rice in low-income countries around the earth was grown with these Green Revolution seeds—and the harvest was twice every bit high per acre. A technological improvement that reduces costs of product volition shift supply to the right, so that a greater quantity will be produced at whatever given price.

Regime policies tin can bear on the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U.S. government imposes a taxation on alcoholic beverages that collects about $8 billion per yr from producers. Taxes are treated equally costs by businesses. Higher costs decrease supply for the reasons discussed above. Other examples of policy that can affect price are the wide array of government regulations that require firms to spend coin to provide a cleaner surround or a safer workplace; complying with regulations increases costs.

A government subsidy, on the other hand, is the opposite of a tax. A subsidy occurs when the authorities pays a firm directly or reduces the firm's taxes if the firm carries out certain actions. From the business firm'southward perspective, taxes or regulations are an additional cost of product 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 increase supply at every given cost, shifting supply to the right. The following Work It Out feature shows how this shift happens.

Shift in Supply

We know that a supply curve shows the minimum price a firm will accept to produce a given quantity of output. What happens to the supply curve when the price of production goes upwards? Following is an example of a shift in supply due to a production cost increment.

Step 1. Draw a graph of a supply curve for pizza. Selection a quantity (like Q₀). If y'all draw a vertical line up from Q₀ to the supply curve, y'all volition run into the price the firm chooses. An example is shown in Figure seven.

Figure 7. Supply Curve. The supply bend can exist used to testify the minimum price a firm will accept to produce a given quantity of output.

Footstep 2. Why did the firm cull that cost and not some other? One way to recall virtually this is that the price is composed of two parts. The first part is the average cost of production, in this instance, the cost of the pizza ingredients (dough, sauce, cheese, pepperoni, and and so on), the cost of the pizza oven, the rent on the shop, and the wages of the workers. The second part is the firm's desired profit, which is determined, amidst other factors, by the profit margins in that particular business. If you add these two parts together, y'all get the price the firm wishes to charge. The quantity Q0 and associated price P0 requite you one point on the business firm's supply bend, as shown in Effigy 8.

Figure 8. Setting Prices. The cost of production and the desired profit equal the price a firm will set for a production.

Step 3. Now, suppose that the cost of production goes upwardly. Possibly cheese has become more expensive by $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 point on the supply curve directly above the initial point on the bend, but $0.75 higher, as shown in Figure nine.

Figure 9. Increasing Costs Leads to Increasing Price. Because the toll of production and the desired profit equal the cost a firm volition set for a product, if the toll of production increases, the price for the production will also demand to increase.

Step four. Shift the supply curve through this point. You will see that an increase in cost causes an upward (or a leftward) shift of the supply curve so that at any price, the quantities supplied will exist smaller, as shown in Figure x.

Figure 10. Supply Curve Shifts. When the toll of product increases, the supply curve shifts upwardly to a new cost level.

Summing Up Factors That Change Supply

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

Effigy 11 summarizes factors that modify the supply of goods and services. Notice that a modify in the price of the product itself is not among the factors that shift the supply curve. Although a change in price of a expert or service typically causes a change in quantity supplied or a movement along the supply curve for that specific good or service, information technology does not cause the supply curve itself to shift.

Figure 11. Factors That Shift Supply Curves. (a) A list of factors that can cause an increase in supply from Southward₀ to S_i. (b) The same factors, if their direction is reversed, tin crusade a subtract in supply from S₀ to S_one.

Because demand and supply curves appear on a ii-dimensional diagram with only price and quantity on the axes, an unwary visitor to the land of economics might be fooled into assertive that economics is about only 4 topics: demand, supply, toll, and quantity. Withal, demand and supply are really "umbrella" concepts: demand covers all the factors that touch demand, and supply covers all the factors that affect supply. Factors other than price that affect demand and supply are included by using shifts in the demand or the supply curve. In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a broad range of economic circumstances.

Key Concepts and Summary

Economists oft use the ceteris paribus or "other things being equal" assumption: while examining the economic impact of one outcome, all other factors remain unchanged for the purpose of the assay. Factors that tin can shift the demand bend for goods and services, causing a different quantity to be demanded at any given toll, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about futurity conditions and prices. Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given toll, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies.

Self-Check Questions

1. Why exercise economists employ the ceteris paribus assumption?
2. In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will bear upon supply or need, and in what direction.
   1. In that location have recently been some important cost-saving inventions in the technology for making paint.
   2. Pigment is lasting longer, so that property owners need non repaint as ofttimes.
   3. Because of astringent hailstorms, many people need to repaint at present.
   4. The hailstorms damaged several factories that make paint, forcing them to close downwardly for several months.
3. Many changes are affecting the marketplace for oil. Predict how each of the following events volition affect the equilibrium toll and quantity in the market place for oil. In each example, state how the consequence will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
   1. Cars are becoming more than fuel efficient, and therefore get more miles to the gallon.
   2. The wintertime 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 Japan, slow downwards.
   5. A state of war in the Middle East disrupts oil-pumping schedules.
   6. Landlords install boosted insulation in buildings.
   7. The price of solar energy falls dramatically.
   8. Chemical companies invent a new, popular kind of plastic made from oil.

Review Questions

1. When analyzing a marketplace, how do economists bargain with the problem that many factors that affect the market are changing at the same time?
2. Name some factors that can cause a shift in the need 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.

Disquisitional 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 good (for instance, hamburger buns) increases, can you lot tell for sure what volition happen to the demand for hamburgers? Why or why non? Illustrate your answer with a graph.
2. How practice you suppose the demographics of an aging population of "Baby Boomers" in the The states will impact the need for milk? Justify your reply.
3. We know that a change in the cost of a product causes a movement along the need curve. Suppose consumers believe that prices will be ascension in the future. How will that bear on demand for the product in the present? Tin can y'all prove this graphically?
4. Suppose in that location is soda revenue enhancement to curb obesity. What should a reduction in the soda revenue enhancement exercise to the supply of sodas and to the equilibrium cost and quantity? Tin you bear witness this graphically? Hint: assume that the soda taxation is collected from the sellers

Problems

1. Table half-dozen shows data on the need and supply for bicycles, where the quantities of bicycles are measured in thousands.
   

   Price	Qd	Qs
   $120	l	36
   $150	40	twoscore
   $180	32	48
   $210	28	56
   $240	24	seventy
   Table 6. Need 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 demand 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 cost was $120, what would the quantities demanded and supplied be? Would a shortage or surplus exist? If so, how large would the shortage or surplus be?
2. The estimator market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is virtually probable to explain this upshot? Sketch a demand and supply diagram and explain your reasoning for each.
   1. A rise in need
   2. A fall 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 Craven Council. 2015. "Per Capita Consumption of Poultry and Livestock, 1965 to Estimated 2015, in Pounds." Accessed April 13, 2015. http://www.nationalchickencouncil.org/nigh-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, Too." 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 one good tends to raise consumption of the other

factors of production

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

junior practiced

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

inputs

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

normal good

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

shift in need

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

shift in supply

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

substitute

a good that can supercede some other to some extent, and then that greater consumption of ane practiced tin can mean less of the other

Solutions

Answers to Cocky-Check Questions

1. To make information technology easier to analyze complex problems. Ceteris paribus allows yous to look at the event of 1 cistron at a time on what information technology is you lot are trying to clarify. When you accept analyzed all the factors individually, you add the results together to get the final answer.
2. 1. An improvement in engineering science that reduces the toll of production volition cause an increase in supply. Alternatively, you can retrieve of this as a reduction in cost necessary for firms to supply any quantity. Either mode, this can be shown as a rightward (or downward) shift in the supply curve.
   2. An improvement in product quality is treated as an increase in tastes or preferences, meaning consumers need more pigment 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 will fall, since consumers are essentially shifting demand from the future to the present.
   3. An increase in need causes an increase in demand or a rightward shift in the demand curve.
   4. Factory harm means that firms are unable to supply as much in the present. Technically, this is an increment in the price of production. Either style you expect at information technology, the supply curve shifts to the left.
3. 1. More fuel-efficient cars ways there is less demand for gasoline. This causes a leftward shift in the demand for gasoline and thus oil. Since the need bend is shifting down the supply bend, the equilibrium price and quantity both fall.
   2. Common cold weather increases the need for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the demand curve is shifting up the supply curve, the equilibrium toll and quantity both rise.
   3. A discovery of new oil will make oil more abundant. This tin can be shown equally a rightward shift in the supply curve, which will cause a subtract in the equilibrium cost along with an increase in the equilibrium quantity. (The supply curve shifts downwards the demand curve so price and quantity follow the law of demand. If price goes down, then the quantity goes up.)
   4. When an economic system slows downward, information technology produces less output and demands less input, including energy, which is used in the production of virtually everything. A subtract in demand for energy will exist reflected as a decrease in the demand for oil, or a leftward shift in demand for oil. Since the need curve is shifting down 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 bend will show a movement up the demand curve, resulting in an increase in the equilibrium price of oil and a decrease in the equilibrium quantity.
   6. Increased insulation volition subtract the need for heating. This leftward shift in the need for oil causes a movement down the supply curve, resulting in a decrease in the equilibrium price and quantity of oil.
   7. Solar free energy is a substitute for oil-based energy. So if solar free 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 need curve. Equally the demand curve shifts down the supply curve, both equilibrium price and quantity for oil volition autumn.
   8. A new, pop kind of plastic will increase the demand for oil. The increase in demand will be shown as a rightward shift in demand, raising the equilibrium toll and quantity of oil.

daileydivening.blogspot.com

Source: https://opentextbc.ca/principlesofeconomics/chapter/3-2-shifts-in-demand-and-supply-for-goods-and-services/

Share this post