A Monopoly Baby Goods Store Has 4 Customers, Shown in the Table Below.

Chapter 3. Need and Supply

3.2 Shifts in Need and Supply for Appurtenances and Services

Learning Objectives

By the terminate of this section, you volition exist able to:

• Identify factors that affect need
• Graph demand curves and demand shifts
• Identify factors that affect supply
• Graph supply curves and supply shifts

The previous module explored how cost affects the quantity demanded and the quantity supplied. The effect was the need curve and the supply curve. Price, however, is not the only thing that influences need. Nor is information technology the just affair that influences supply. For example, how is demand for vegetarian nutrient afflicted if, say, wellness concerns cause more consumers to avoid eating meat? Or how is the supply of diamonds affected if diamond producers discover several new diamond mines? What are the major factors, in improver to the price, that influence need or supply?

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

What Factors Affect Demand?

We defined demand as the amount of some product a consumer is willing and able to purchase at each toll. That suggests at least 2 factors in addition to cost that bear upon demand. Willingness to buy suggests a desire, based on what economists phone call tastes and preferences. If you lot neither need nor desire something, you will not purchase it. Ability to purchase suggests that income is important. Professors are normally able to afford amend housing and transportation than students, because they have more income. Prices of related goods can touch need also. If you need a new car, the cost of a Honda may affect your need for a Ford. Finally, the size or composition of the population tin can affect demand. The more children a family has, the greater their demand for clothing. The more driving-age children a family has, the greater their need for automobile insurance, and the less for diapers and infant formula.

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

The Ceteris Paribus Supposition

A need curve or a supply curve is a relationship between ii, and only 2, variables: quantity on the horizontal centrality and toll on the vertical axis. The assumption backside a demand curve or a supply curve is that no relevant economic factors, other than the product's 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 bend or a supply curve is a relationship between 2, and only two, variables when all other variables are kept constant. If all else is not held equal, so the laws of supply and need volition non necessarily hold, as the post-obit Clear It Up feature shows.

When does ceteris paribus apply?

Ceteris paribus is typically practical when nosotros look at how changes in price affect demand or supply, but ceteris paribus can exist applied more by and large. In the real world, demand and supply depend on more factors than simply cost. For example, a consumer's demand depends on income and a producer's supply depends on the cost of producing the product. How tin nosotros clarify the upshot on demand or supply if multiple factors are irresolute 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 instance, we tin can say that an increase in the price reduces the amount consumers volition buy (assuming income, and annihilation else that affects need, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to purchase (assuming price, and anything else that affects need, is unchanged). This is what the ceteris paribus assumption really means. In this detail case, afterward nosotros clarify each factor separately, we tin can combine the results. The amount consumers buy falls for two reasons: commencement because of the higher price and second because of the lower income.

How Does Income Affect Demand?

Let's apply income as an example of how factors other than cost affect demand. Figure 1 shows the initial demand for automobiles every bit D₀. At point Q, for example, if the price is $twenty,000 per motorcar, the quantity of cars demanded is 18 million. D₀ likewise shows how the quantity of cars demanded would alter as a result of a higher or lower price. For case, if the cost of a motorcar rose to $22,000, the quantity demanded would subtract to 17 1000000, at point R.

The original need curve 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 affordable. How volition this affect demand? How tin nosotros show this graphically?

Render to Figure 1. The price of cars is yet $20,000, but with higher incomes, the quantity demanded has now increased to 20 million cars, shown at point S. Every bit a outcome of the college income levels, the demand bend shifts to the right to the new demand curve D₁, indicating an increment in need. Table 4 shows clearly that this increased need would occur at every cost, not merely the original one.

Figure one. Shifts in Demand: A Auto Example. Increased demand means that at every given price, the quantity demanded is college, then that the demand curve shifts to the right from D₀ to D₁. Decreased need means that at every given price, the quantity demanded is lower, and then that the demand curve shifts to the left from D₀ to D_ii.

Price	Decrease to D2	Original Quantity Demanded D0	Increase to D1
$sixteen,000	17.six million	22.0 million	24.0 1000000
$18,000	xvi.0 million	20.0 million	22.0 million
$20,000	14.4 meg	18.0 1000000	20.0 million
$22,000	thirteen.6 1000000	17.0 million	19.0 million
$24,000	xiii.two one thousand thousand	sixteen.5 million	18.five meg
$26,000	12.8 meg	16.0 million	18.0 one thousand thousand
Tabular array 4. Price and Demand Shifts: A Car Example

At present, imagine that the economic system slows down so that many people lose their jobs or piece of work fewer hours, reducing their incomes. In this case, the decrease in income would pb to a lower quantity of cars demanded at every given toll, and the original demand bend D₀ would shift left to D₂. The shift from D₀ to D₂ represents such a decrease in need: At whatever given price level, the quantity demanded is now lower. In this instance, a price of $20,000 means 18 1000000 cars sold along the original demand curve, but only 14.four 1000000 sold later on demand fell.

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

In the previous department, we argued that college income causes greater demand at every price. This is true for almost 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 product whose demand rises when income rises, and vice versa, is chosen a normal good. A few exceptions to this pattern do be. As incomes rise, many people will buy fewer generic make groceries and more name brand groceries. They are less probable to buy used cars and more likely to buy new cars. They will be less probable to hire an flat and more than likely to own a home, and so on. A product whose demand falls when income rises, and vice versa, is called an inferior proficient. In other words, when income increases, the demand bend shifts to the left.

Other Factors That Shift Demand Curves

Income is not the only factor that causes a shift in demand. Other things that change demand include tastes and preferences, the limerick or size of the population, the prices of related goods, and even expectations. A change in whatever 1 of the underlying factors that decide what quantity people are willing to buy at a given price volition cause a shift in demand. Graphically, the new demand bend lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let's expect at these factors.

Irresolute Tastes or Preferences

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

Changes in the Limerick of the Population

The proportion of elderly citizens in the U.s. population is rising. It rose from ix.viii% in 1970 to 12.half dozen% in 2000, and volition exist a projected (by the U.S. Census Bureau) 20% of the population by 2030. A society with relatively more children, like the Usa in the 1960s, volition take greater demand for goods and services like tricycles and twenty-four hours care facilities. A society with relatively more elderly persons, as the United States is projected to have past 2030, has a college demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other appurtenances. Each of these changes in need will exist shown equally a shift in the demand curve.

The demand for a product can besides be afflicted by changes in the prices of related appurtenances such as substitutes or complements. A substitute is a good or service that tin can be used in place of some other good or service. Every bit electronic books, like this i, become more available, you would look to see a decrease in demand for traditional printed books. A lower price for a substitute decreases need for the other product. For case, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the police of need). Since people are purchasing tablets, there has been a decrease in need for laptops, which tin be shown graphically as a leftward shift in the demand curve for laptops. A higher price for a substitute practiced has the reverse outcome.

Other goods are complements for each other, significant that the goods are often used together, because consumption of one adept 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 toll of golf clubs rises, since the quantity demanded of golf clubs falls (because of the law of demand), need for a complement good similar golf game balls decreases, too. Similarly, a higher price for skis would shift the demand curve for a complement skillful like ski resort trips to the left, while a lower price for a complement has the reverse outcome.

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

While it is clear that the price of a proficient affects the quantity demanded, it is also true that expectations about the hereafter price (or expectations almost tastes and preferences, income, and then on) tin impact demand. For example, if people hear that a hurricane is coming, they may blitz to the store to buy flashlight batteries and bottled water. If people learn that the cost of a good like coffee is likely to ascent in the future, they may head for the store to stock upwardly 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 factor (other than price) causes a dissimilar quantity to be demanded at every price. The following Work It Out feature shows how this happens.

Shift in Need

A shift in demand means that at whatever price (and at every price), the quantity demanded will exist dissimilar than it was before. Following is an instance of a shift in demand due to an income increment.

Footstep 1. Draw the graph of a demand curve for a normal good similar pizza. Pick a price (like P₀). Place the corresponding Q₀. An example is shown in Figure 2.

Effigy ii. Need Bend. The demand curve can be used to identify how much consumers would purchase at whatever given toll.

Step 2. Suppose income increases. As a result 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 chosen cost, through the original quantity demanded, to the new point with the new Q_ane. Depict a dotted vertical line down to the horizontal axis and characterization the new Q_i. An case is provided in Figure 3.

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

Footstep 3. Now, shift the curve through the new point. You will come across that an increase in income causes an upwardly (or rightward) shift in the demand curve, so that at any price the quantities demanded will be higher, equally shown in Figure four.

Figure four. Demand Curve Shifted Right. With an increase in income, consumers volition purchase larger quantities, pushing demand to the right, and causing the demand curve to shift correct.

Summing Upwards Factors That Change Need

Six factors that can shift demand curves are summarized in Figure five. The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a decrease 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 alter in the price of a good or service causes a movement along a specific demand bend, and it typically leads to some alter in the quantity demanded, but it does not shift the demand bend.

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

When a demand curve shifts, information technology will then intersect with a given supply curve at a different equilibrium price and quantity. We are, nevertheless, getting ahead of our story. Before discussing how changes in demand can impact equilibrium price and quantity, nosotros kickoff need to discuss shifts in supply curves.

How Production Costs Touch Supply

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

In thinking almost the factors that affect supply, call up 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 production. If a house faces lower costs of production, while the prices for the good or service the house produces remain unchanged, a firm's profits become upwardly. 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. And then, when costs of product autumn, a business firm volition tend to supply a larger quantity at any given cost for its output. This can be shown by the supply curve shifting to the right.

Take, for instance, a messenger company that delivers packages around a metropolis. The company may find that buying gasoline is one of its main costs. If the price of gasoline falls, then the company will find information technology can deliver letters more cheaply than earlier. Since lower costs represent 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 company can at present serve a greater area, and increase its supply.

Conversely, if a firm faces higher costs of production, then it volition earn lower profits at any given selling price for its products. As a outcome, a higher toll of production typically causes a firm to supply a smaller quantity at whatsoever given price. In this example, the supply curve shifts to the left.

Consider the supply for cars, shown by curve South₀ in Figure 6. Point J indicates that if the cost is $xx,000, the quantity supplied will be 18 million cars. If the toll rises to $22,000 per motorcar, ceteris paribus, the quantity supplied volition rise to 20 meg cars, as point K on the Southward₀ curve shows. The same data can exist shown in table class, every bit in Table 5.

Figure half dozen. Shifts in Supply: A Machine 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 Southward₀ to S₁. Increased supply means that at every given price, the quantity supplied is college, so that the supply curve shifts to the right, from S₀ to S_ii.

Price	Decrease to S1	Original Quantity Supplied S0	Increment to Due south2
$16,000	10.5 million	12.0 million	13.2 million
$18,000	xiii.5 meg	15.0 1000000	16.5 one thousand thousand
$xx,000	16.5 million	18.0 million	19.8 million
$22,000	18.five million	20.0 meg	22.0 million
$24,000	nineteen.5 million	21.0 million	23.1 million
$26,000	20.5 one thousand thousand	22.0 million	24.two million
Table five. Cost and Shifts in Supply: A Motorcar Example

Now, imagine that the price of steel, an important ingredient in manufacturing cars, rises, so that producing a car has become more expensive. At any given price for selling cars, machine manufacturers will react by supplying a lower quantity. This can exist shown graphically as a leftward shift of supply, from S₀ to S₁, which indicates that at any given price, the quantity supplied decreases. In this instance, at a cost of $20,000, the quantity supplied decreases from 18 million on the original supply bend (South₀) to 16.five meg on the supply curve South₁, which is labeled as betoken 50.

Conversely, if the price of steel decreases, producing a machine becomes less expensive. At any given toll for selling cars, car 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 South_ii, means that at all prices, the quantity supplied has increased. In this example, at a price of $twenty,000, the quantity supplied increases from 18 one thousand thousand on the original supply curve (S₀) to xix.8 meg on the supply curve Southward₂, which is labeled Yard.

Other Factors That Affect Supply

In the example higher up, nosotros saw that changes in the prices of inputs in the product process will affect the cost of production and thus the supply. Several other things affect the toll of production, as well, such as changes in weather or other natural weather, 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 Plain in Northeastern Cathay, which produces well-nigh of the land's wheat, corn, and soybeans, experienced its about severe drought in fifty years. A drought decreases the supply of agricultural products, which means that at any given toll, a lower quantity will be supplied; conversely, especially skillful atmospheric condition would shift the supply curve to the correct.

When a firm discovers a new applied science that allows the house to produce at a lower price, the supply curve will shift to the right, as well. For case, in the 1960s a major scientific effort nicknamed the Green Revolution focused on breeding improved seeds for basic crops similar wheat and rice. By the early 1990s, more than 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 as loftier per acre. A technological comeback that reduces costs of production volition shift supply to the right, and so that a greater quantity volition be produced at whatsoever given price.

Government policies tin can affect the price of production and the supply bend through taxes, regulations, and subsidies. For example, the U.S. government imposes a revenue enhancement on alcoholic beverages that collects near $eight billion per year from producers. Taxes are treated as costs by businesses. Higher costs decrease supply for the reasons discussed higher up. Other examples of policy that tin affect toll are the wide array of authorities regulations that require firms to spend money to provide a cleaner environment or a safer workplace; complying with regulations increases costs.

A authorities subsidy, on the other hand, is the opposite of a revenue enhancement. A subsidy occurs when the government pays a firm directly or reduces the firm's taxes if the firm carries out certain actions. From the house's perspective, taxes or regulations are an additional cost 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 price, shifting supply to the right. The following Piece of work It Out characteristic shows how this shift happens.

Shift in Supply

We know that a supply curve shows the minimum price a firm volition have to produce a given quantity of output. What happens to the supply curve when the cost of production goes up? Following is an example of a shift in supply due to a product cost increase.

Pace i. 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, y'all will see the toll the house chooses. An example is shown in Figure 7.

Effigy 7. Supply Curve. The supply curve can be used to show the minimum price a firm will accept to produce a given quantity of output.

Step two. Why did the house choose that toll and non some other? One way to remember almost this is that the toll is composed of two parts. The showtime office is the average cost of product, in this case, the price of the pizza ingredients (dough, sauce, cheese, pepperoni, and and so on), the cost of the pizza oven, the hire on the shop, and the wages of the workers. The 2nd part is the firm's desired profit, which is determined, among other factors, by the profit margins in that particular business. If you add these two parts together, you become the toll the firm wishes to accuse. The quantity Q0 and associated price P0 give yous ane point on the house's supply curve, every bit shown in Figure 8.

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

Step three. Now, suppose that the toll of production goes up. Perhaps cheese has go more expensive by $0.75 per pizza. If that is true, the firm will want to raise its price by the amount of the increment in toll ($0.75). Draw this point on the supply bend directly above the initial point on the curve, only $0.75 higher, as shown in Figure nine.

Figure 9. Increasing Costs Leads to Increasing Price. Because the cost of product and the desired turn a profit equal the price a firm will set for a product, if the toll of production increases, the cost for the production will too need to increment.

Stride iv. Shift the supply curve through this point. You volition run into that an increment in cost causes an upward (or a leftward) shift of the supply bend so that at any price, the quantities supplied will be smaller, as shown in Effigy ten.

Figure x. Supply Bend Shifts. When the price of product increases, the supply curve shifts upwardly to a new price 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 cost of production. In turn, these factors affect how much firms are willing to supply at any given toll.

Figure 11 summarizes factors that modify the supply of goods and services. Notice that a change in the cost of the product itself is not amid the factors that shift the supply bend. Although a change in price of a good or service typically causes a change in quantity supplied or a move along the supply curve for that specific good or service, it does not crusade the supply curve itself to shift.

Figure xi. Factors That Shift Supply Curves. (a) A list of factors that can crusade an increase in supply from South₀ to S_i. (b) The aforementioned factors, if their direction is reversed, can cause a decrease in supply from S₀ to Due south₁.

Because demand and supply curves appear on a 2-dimensional diagram with only cost and quantity on the axes, an unwary visitor to the land of economic science might be fooled into believing that economics is nearly merely four topics: demand, supply, price, and quantity. All the same, demand and supply are really "umbrella" concepts: need covers all the factors that touch demand, and supply covers all the factors that touch on supply. Factors other than toll that impact demand and supply are included by using shifts in the demand or the supply curve. In this way, the 2-dimensional demand and supply model becomes a powerful tool for analyzing a broad range of economic circumstances.

Cardinal Concepts and Summary

Economists oftentimes use the ceteris paribus or "other things being equal" assumption: while examining the economic touch of one issue, all other factors remain unchanged for the purpose of the assay. Factors that tin can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about time to come weather condition 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-Bank check Questions

1. Why practise economists use the ceteris paribus supposition?
2. In an analysis of the market for pigment, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.
   1. In that location accept recently been some important cost-saving inventions in the technology for making paint.
   2. Paint is lasting longer, then that property owners need non repaint every bit often.
   3. Because of severe hailstorms, many people demand to repaint now.
   4. The hailstorms damaged several factories that make paint, forcing them to shut downwardly for several months.
3. Many changes are affecting the marketplace for oil. Predict how each of the post-obit events will touch on the equilibrium price and quantity in the market place for oil. In each case, country how the event will impact the supply and demand diagram. Create a sketch of the diagram if necessary.
   1. Cars are condign more than fuel efficient, and therefore become more miles to the gallon.
   2. The winter is exceptionally cold.
   3. A major discovery of new oil is made off the declension of Kingdom of norway.
   4. The economies of some major oil-using nations, like Japan, slow downwards.
   5. A war in the Heart East disrupts oil-pumping schedules.
   6. Landlords install boosted insulation in buildings.
   7. The cost of solar energy falls dramatically.
   8. Chemical companies invent a new, popular kind of plastic made from oil.

Review Questions

1. When analyzing a market, how exercise economists deal with the problem that many factors that affect the market are changing at the aforementioned time?
2. Name some factors that tin can cause a shift in the need curve in markets for goods 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 need for hamburgers. If the price of a substitute good (for case, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what volition happen to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.
2. How practice yous suppose the demographics of an aging population of "Baby Boomers" in the United States will touch on the demand for milk? Justify your reply.
3. We know that a change in the toll of a product causes a movement along the demand curve. Suppose consumers believe that prices volition be rising in the future. How will that affect demand for the production in the nowadays? Tin you show this graphically?
4. Suppose at that place is soda tax to curb obesity. What should a reduction in the soda revenue enhancement do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: assume that the soda tax is collected from the sellers

Bug

1. Table 6 shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.
   

   Price	Qd	Qs
   $120	50	36
   $150	40	40
   $180	32	48
   $210	28	56
   $240	24	70
   Table 6. 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 demand and supply curve for bicycles. How can you lot determine the equilibrium toll and quantity from the graph? How tin you determine the equilibrium price and quantity from the table? 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 exist? If so, how large would the shortage or surplus be?
2. The computer market in recent years has seen many more than computers sell at much lower prices. What shift in demand or supply is about likely to explain this effect? Sketch a demand and supply diagram and explain your reasoning for each.
   1. A rise 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 Gratuitous Printing. 2012. specifically Section Four: How Markets Piece of work.

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

Wessel, David. "Kingdom of saudi arabia Fears $forty-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 beingness equal

complements

goods that are ofttimes used together so that consumption of one good tends to enhance consumption of the other

factors of production

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

inferior good

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 appurtenances and services; as well chosen factors of product

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 alter in some economic gene (other than price) causes a different quantity to be demanded at every cost

shift in supply

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

substitute

a skillful that tin replace another to some extent, so that greater consumption of ane good tin mean less of the other

Solutions

Answers to Self-Check Questions

1. To make it easier to analyze complex problems. Ceteris paribus allows you lot to look at the effect of one factor at a time on what it is you lot are trying to analyze. When you take analyzed all the factors individually, y'all add the results together to get the terminal answer.
2. 1. An comeback in technology that reduces the price of production will crusade an increase in supply. Alternatively, you lot can think of this as a reduction in price necessary for firms to supply whatsoever quantity. Either way, this can be shown as a rightward (or down) shift in the supply bend.
   2. An improvement in product quality is treated every bit an increase in tastes or preferences, meaning consumers demand more pigment at any price level, and then need increases or shifts to the right. If this seems counterintuitive, notation that demand in the hereafter for the longer-lasting pigment volition autumn, since consumers are essentially shifting demand from the future to the present.
   3. An increase in demand causes an increase in demand or a rightward shift in the demand curve.
   4. Factory harm means that firms are unable to supply equally much in the present. Technically, this is an increase in the cost of product. Either way yous look at information technology, the supply bend shifts to the left.
3. 1. More fuel-efficient cars means there is less demand for gasoline. This causes a leftward shift in the need for gasoline and thus oil. Since the demand curve is shifting down the supply bend, the equilibrium toll and quantity both fall.
   2. Cold weather increases the need for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the need curve is shifting upwardly the supply bend, the equilibrium price and quantity both rise.
   3. A discovery of new oil will brand oil more abundant. This can be shown as a rightward shift in the supply curve, which volition crusade a decrease in the equilibrium price along with an increase in the equilibrium quantity. (The supply curve shifts down the demand curve so toll and quantity follow the law of demand. If cost goes downwardly, so the quantity goes upwards.)
   4. When an economy slows down, it produces less output and demands less input, including energy, which is used in the production of near everything. A decrease in need 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 down the supply curve, both the equilibrium price and quantity of oil volition autumn.
   5. Disruption of oil pumping volition reduce the supply of oil. This leftward shift in the supply curve will show a movement up the demand bend, resulting in an increase in the equilibrium price of oil and a decrease in the equilibrium quantity.
   6. Increased insulation volition subtract the demand for heating. This leftward shift in the demand for oil causes a motion down the supply curve, resulting in a decrease in the equilibrium cost and quantity of oil.
   7. Solar energy is a substitute for oil-based energy. So if solar energy becomes cheaper, the need for oil volition subtract every bit consumers switch from oil to solar. The subtract in demand for oil will be shown equally 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 increment the demand for oil. The increase in need will exist shown as a rightward shift in demand, raising the equilibrium price and quantity of oil.

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

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