ARHS 1003 1st Edition Lecture 8 Outline of Last Lecture I Calculating Opportunity Cost Outline of Current Lecture II Demand and Supply III Demand curve shifters IV Supply Current Lecture Demand curve shifters Increase in number of buyers more buyers in the market means the demand curve will shift to the right with fewer buyers it will shift to the left Increase in income tends to shift demand curve right in the case of normal goods Compliments Two goods are complements if an increase in the price of one causes a fall in demand for the other e g computers and software Substitutes Taste anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right e g the atkins diet became popular in the 90 s and shifted the D curve for eggs towards the right Expectations expectations affect consumers buying decisions e g if you expect your income to increase you are more likely to buy more or if the economy is going bad then people tend to spend less due to fears of losing a their job Price only causes a movement ALONG the D curve Whereas number of buyers income price of related goods tastes and expectations all are demand curve shifters Demand curve shifters Examples What happens to music downloads if A The price of Ipods falls B The price of music downloads falls C The price of CD s falls The 3 possible answers are 1 The curve shifts to the right 2 The curve shifts to the left 3 The curve does not shift although usually this means there will be movement along the line curve A The price of Ipods falls a This means that the demand curve for music downloads will shift right because Ipods and music downloads are complementary goods B The price of music downloads falls a Because this is price related the demand curve does not shift because as the price goes down the demand goes up meaning that the point on the curve will move down and to the right C The of CD s falls a Because CD s and Music downloads are substitutes this will shift the demand curve inwards Supply Supply the quantity supplied of and good is the amount that sellers are willing and able to sell Law of supply the claim that the quantity supplied of a good rises when the price of the good rises quantity rises when price rises opposite of demand Supply schedule quantity of lattes supplied Price of lattes 0 00 3 1 6 2 9 3 12 4 15 5 18 6 The reason a seller does not produce more than 3 lattes at 1 is because of the cost of production a fourth latte would make him lose money The logical thing we can say about the cost of production is that as you expand production the marginal cost increases Marginal cost of production increases so in order to expand production you will have to do something that will cost money new equipment employees ect You can expand production until cost of production per unit reaches the price per unit
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