DEMAND & SUPPLY SHIFTERS
DEMAND SHIFTERS:
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Incomes
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Normally: Increasing Incomes shift the demand curve to the RIGHT
(more demanded at each and every price; or, equivalently, a higher demand
price (willingness to pay) for each and every quantity)
-
However, for INFERIOR goods, increasing incomes lead people to switch their
consumption to more preferable goods (long distance coach journeys, for
instance, might tend to be used by people with limited incomes, who will
choose the train, plane or car for preference) - so increasing incomes
would shift the demand curve for an inferior good to the left
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Prices of other goods
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for Substitute Goods
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Increasing the price of a substitute good (rail travel versus
plane travel) will reduce its quantity demanded and tend to increase the
demand for this good - shifting this demand curve to the RIGHT
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Reducing the price of a substitute will increase its quantity
demanded, and reduce the demand for this good - shifting the demand for
this good to the LEFT
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for Complements (goods or services which are used or consumed with
this one),
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an increase in their price will reduce the quantity demanded
of the complement, and thus also reduce the demand for this good (or service),
and hence shift the demand curve for this good to the LEFT,
-
a reduction in the price of a complement will shift the demand
curve for this good to the RIGHT
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Tastes & preferences
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Increased preferences for goods shift their demand curves to the
RIGHT and vice versa
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Population (number of people)
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Increased population will shift demand curves to the RIGHT
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Household demographics
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Changes in family sizes, household sizes, age distiributions, working partners
etc. will all tend to shift demand curves depending on their particular
characteristics and relationships
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For instance: increasing participation in the work force by partners tends
to increase demand for ready-meals and pre-prepared meals - shifting demand
to the right
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Weather (ice cream, umberellas!)
-
Fine and warm weather increases demand for ice cream, shifting demand to
the RIGHT
RIGHTWARD DEMAND SHIFTS WILL TEND TO INCREASE PRICES AND INCREASE QUANTITIES
TRADED (against upward sloping supply curves) and vice versa.
SUPPLY SHIFTERS:
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Costs of Production
-
Increased Costs shift supply curves to the LEFT (higher prices now
required to justify each and every quantity supplied; equivalently, less
will be supplied at each and every price, as only the most efficient producers
will be able to stay in business)
-
Reduced Costs shift supply curves to the RIGHT
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Prices of other goods (Opportunities elsewhere)
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Increased prices of other goods mean more to be earned from other goods
than this one, so Supply Curve shifts to the LEFT
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However, for goods which are complementary in production (like animal
hides and meats), and increase in the price of meat will
tend to increase the quantity supplied of meat, and thus increase the supply
of animal hides as well, shifting the supply of hides to the RIGHT.
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Technology
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New technologies will be adopted if they reduce the costs of production
- hence improved technology will shift supply curves to the RIGHT.
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[Notice, the converse - increased regulation will tend to shift
supply curves to the LEFT]
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Number & Size of Firms
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The More firms there are in the business, and the bigger each firm is,
the further to the RIGHT will be the market supply curve.
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Weather & disease (farm products)
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Bad Weather, or disease, will shift the supply curve to the LEFT
RIGHTWARD SUPPLY SHIFTS WILL TEND TO REDUCE PRICES AND INCREASE QUANTITIES
(against Downward sloping demand curves) and vice versa.
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