Shift in the Demand and Supply curves.

Movement Vs. Shift

Movements
A movement refers to a change along a curve. On the demand curve, a movement denotes a change in both price and quantity demanded from one point to another on the curve. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.


Like a movement along the demand curve, a movement along the supply curve means that the supply relationship remains consistent. In other words, a movement occurs when a change in quantity supplied is caused only by a change in price, and vice versa.

Shifts
A shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though price remains the same.

Example: if the price for a bottle of beerwas $2 and the quantity of pepsi demanded increased from Q1 to Q2, then there would be a shift in the demand for beer. Shifts in the demand curve imply that the original demand relationship has changed, meaning that quantity demand is affected by a factor other than price. A shift in the demand relationship would occur if, for instance, beer suddenly became the only type of alcoholic drink available for consumption.

If the price for a bottle of beer was $2 and the quantity supplied decreased from Q1 to Q2, then there would be a shift in the supply of beer. Like a shift in the demand curve, a shift in the supply curve implies that the original supply curve has changed, meaning that the quantity supplied is effected by a factor other than price. A shift in the supply curve would occur if, for instance, a natural disaster caused a mass shortage of hops; beer manufacturers would be forced to supply less beer for the same price.

Factors that affect DEMAND: 1) A rise in incomes. As incomes increase, peoples purchasing power increases and this leads to an increase in Demand. Example: People will buy their own private cars instead of using public transportation. 2) Changes in population. The greater the population, the greater the Demand. 3) Expectation of consumers About future prices Example: If the price of iphone is going to increase the demand for it now will increase, and vice versa. About future availability. If people expect that in the future there will be a shortage in the supply of tissue paper, they will keep a stock. Therefore,demand increases. About future income. If you expect a raise in your income, your demand will increase and vice versa. Factors that affect SUPPLY: 1) Cost of production As the cost of production increases, the supply will decrease. Possible causes of an increase in the cost of production: -rise in wagse -rise in the cost of raw materials -increase in the expenditure taxes 2) The state of technology As technology advances, productivity increases and therefore supply increases. 3) Changes in prices of substitute goods. Example: If a farmer plnats more than one product (broccoli and corn) and he notices that prices of corn are increasing in the economy while those of broccoli are decreasing he would increase the supply of corn and decrease that of broccoli. (AND vice versa) 4) Government regulations. If the government decides to increase subsidies, the supply will increase.

Answer the following questions:

1. While all other things are kept constant, which of the following would not cause a change in demand( shift in the demand curve) for scooters?

[A] A decrease in consumer incomes.

[B] A decrease in the price of scooters.

[C] An increase in the price of bicycles, a substitute for scooters.

[D] An increase in the peoples tastes and preferences for scooters.

[E] All of the above.

2. A decrease in the price of gasoline will most likely cause the demand curve for tires to change in which direction?

[A] To the left, because gasoline and tires are substitutes.

[B] To the left, because gasoline and tires are compliments.

[C] To the right, because gasoline and tires are substitutes.

[D] To the right, because gasoline and tires are compliments.

[E] To the right, because an increase in the price of gasoline makes consumers poorer and thus not willing to pay as much for tires.

Introduction

Macroeconomics deals with topics of inflation and unemployment. This selection of readings introduces you to macroeconomics by looking at extreme episodes. We will also become familiar with how demand and supply affect the economy as a whole, mainly levels of employment and inflation, and we will learn different methods by which we can stimulate demand or supply in an economy.

Source : http://www.theinsidetrader.com.au/?action=page&page=NI_introduction.html

Demand and Supply

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

A. The law of Demand :

If all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded.This is illustrated in the figure above by the downward sloping curve for the demand which indicates that the quantity demanded decreases as prices increase.( movement along the demand curve).

B. The Law of Supply:

Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

C. Equilibrium:

When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding :

Now, try solving the following questions:

1. The law of demand applies to which of the following?

[A] As price falls, the quantity demanded falls.

[B] Price and quantity demanded have a positive relationship.

[C] As price increases, the quantity demanded increases.

[D] Price and quantity demanded move in the same direction.

[E] As price increases, the quantity demanded falls.

2. As the price of cars moves up, the car sales decrease. Which of the following best describes this statement?

[A] The demand curve for cars shifts out.

[B] A contraction of demand.(movement up along the demand curve)

[C] The demand curve for cars shifts inwards.

[D] An extension of demand.(movement down along the demand curve)

[E] none of the above.

3. Define Supply.

What is the factor that causes movement along the supply curve?

What factors cause a shift in the supply curve?

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Macroeconomics deals with topics of inflation and unemployment. This selection of readings introduces you to macroeconomics by looking at extreme episodes.